Filing Personal Bankruptcy Does Not Always Mean You Avoid Foreclosure
The Plain Truth on Personal Bankruptcy
Are you thinking about filing personal bankruptcy to avoid foreclosure? Chapter 7 and chapter 13 personal bankruptcy are often the “safe haven” individuals turn to in order to avoid losing their home.
Things are not always as they seem, though (or as we would like them to be). Unfortunately, filing personal bankruptcy does not always mean you will be able to avoid foreclosure. Here’s the details.
Preventing Foreclosure During Personal Bankruptcy
Filing personal bankruptcy can protect you from foreclosure during the process. It does so due to a legal protective act known as an automatic stay. This occurs as soon as the bankruptcy petition is filed and prevents any creditors from trying to contact you in an attempt to collect debt, any repossessions, or foreclosures.
However, this is only a temporary delay on foreclosure. The automatic stay only lasts for as long as you stick to the bankruptcy agreement. Typically, though, if you stick to the agreement, your home will not be in danger of foreclosure for as long as the bankruptcy is in effect.
Foreclosure After Filing Personal Bankruptcy
Many individuals these days do not have just one mortgage on their home. Home equity lines of credit (HELOC) and multiple mortgages are very popular these days, thanks to the 2007 collapse of the housing market. These liens and additional mortgages can often affect your bankruptcy- and not always for the better.
- HELOC for Chapter 13- When you file personal bankruptcy, you are expected to make payment to both the bankruptcy trustee and your primary mortgage lender. The HELOC will receive payments from the trustee, and will most likely be discharged once your bankruptcy is complete.
- HELOC for Chapter 7- In a chapter 7 personal bankruptcy case, you will have the option of having your HELOC discharged. However, the lien on your house will not be able to be discharged. This means that if you do not sign a reaffirm your payments to the HELOC, you may still find yourself facing foreclosure once your chapter 7 bankruptcy is complete.
- Second Mortgages and Chapter 13- Second and third mortgages can be discharge in bankruptcy, as long as they are not secured by the home’s value. However, in order to keep the home from being foreclosed on, a reaffirmation agreement must be signed with the creditor for the first mortgage.
Can You Afford a Foreclosure After Filing Personal Bankruptcy?
If you are faced with a having to choose a reaffirmation agreement in order to keep your home after bankruptcy, can you afford it? Before signing any agreement, make sure you have the money to back it up. If you are currently without employment or struggling to get by, foreclosure may be a better choice than trying to make payments that require you to sacrifice feeding your family.
While many believe that filing personal bankruptcy is a great way to escape foreclosure, this is not always the case. This process can be tricky if you don’t have the right information. Know the facts before you decide to file, talk to a bankruptcy lawyer, and make sure you take the appropriate steps to keep your home secure after filing personal bankruptcy.
