If you are struggling to pay your bills and are worried your mortgage lender is going to foreclose on your house, filing for Chapter 13 bankruptcy might be the best option you have if you want to stop this from occurring. Here are three things to understand about bankruptcy and how it affects a foreclosure.
Chapter 7 Does Not Stop a Foreclosure
Generally, when you file Chapter 7, you will be allowed to keep your house if the following two conditions exist:
- You do not have too much equity in the house.
- You are not behind on your payments.
When some people struggle to pay their bills, they will always make sure they pay their house payment first, simply to avoid foreclosure. They will then let other bills pass by without paying them, simply because they have less to lose with failing to pay other bills. If you meet these two conditions, then Chapter 7 could be right for you; however, if you are worried your lender will foreclose, it is probably because you have missed at least one payment.
Chapter 13 Stops a Foreclose and All Debt-Collection Efforts
The second thing to understand is that filing for Chapter 13 will stop a foreclosure, whether it has already been initiated or if the lender is preparing to foreclose. If you file under this branch, you will get up to five years to repay your mortgage loan, without any fear at all that the lender will foreclose, and you will get relief from the minute you file your documents. The court will receive the documents of your Chapter 13 filing, and they will instantly notify your mortgage lender and all your other creditors. This notification tells your creditors that they cannot legally contact you for payment, and that they cannot continue pursuing collections of any kind, including foreclosure.
Chapter 13 Also Offers Lien-Stripping
The other thing you should know is that there is an additional benefit offered through Chapter 13 for people with multiple mortgage loans on one house. This benefit is called lien-stripping, and it allows a person to remove a second loan on the house he or she owns if the house is worth less money than the amount of the first loan.
Using Chapter 13 bankruptcy has its pros and cons, but it will stop a foreclosure. If this is what you need, contact a bankruptcy lawyer to find out more information about bankruptcy.