foreclosure vs bankruptcy
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Does declaring bankruptcy when you fall delinquent with mortgage payments help iron out the situation? The answer is, it depends, but it could do!
There are two types of bankruptcy routes that can be explored.
Chapter 13 Bankruptcy: In Chapter 13 bankruptcy you work out a repayment plan which spans from 3 to 5 years which is designed to pay off your creditors. Two things happen here, both of which are good. Firstly, when bankruptcy is filed, creditors have to stop hounding you. The pressure is off and you can at last begin to think. Secondly, it takes time to file. Expect the process to take between 60 and 180 days, so you have bought some much-needed time in which to regroup resources. Thirdly, in the repayment plan for creditors, you mortgage lender will be one of the lenders, with the help of a bright property attorney you will be able to come up with a reduced payment structure to the mortgagor. This should mean you will be able to keep the house and at a repayment rate you can afford. The system is designed to make you feel afraid and ashamed. Don’t do either. You want to work the system to help yourself and reach your own objectives. Don’t play the emotion game because you do want to win don’t you?
Chapter 7 Bankruptcy: You need cash flow and a bit of money to select Chapter 13, but you don’t in Chapter 7. In Chapter 7 you claim you cannot service your debts and thus apply to have them wiped out. Generally speaking this is the case, but you will be expected to pay taxes and student loans back. When it comes to a home the laws differ state by state, but there is a very good chance that you will lose the house. However, if a lot of debt is removed, you have leeway to repay the mortgage and significant arrears. This will involve a subtle approach to the lender. Lenders don’t like foreclosures because they are expensive and messy, so you stand an odds on chance of striking a deal that allows you to continue living in the house. Bankruptcy costs money and even more money if you employ a lawyer, but it is entirely possible a good lawyer could strike a deal on the side with the lender. It needs to be kept discreet because other creditors could complain and come chasing you. That would mean the whole house of cards would come tumbling down. Be careful because bankruptcy stains your credit record for between seven and ten years, but on the other hand so does foreclosure. In certain circumstances, however, you can pay off the debt without disclosure.
Tip: Get a good property attorney and explore this avenue. Best of luck!
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