Editor’s note: This is a guest article from Wystan North a bankruptcy specialist from Ohio
Once used only as a last resort by people drowning in debt, bankruptcy is now viewed more as a strategic move. In particular, it’s becoming a popular choice for people at risk of losing their homes to foreclosure. Many homeowners, stuck with sub-prime mortgages that have reverted to high original rates, are considering bankruptcy to keep their lenders from foreclosing. But does it really work? Read on to learn more about bankruptcy and how it can affect home ownership.
The Automatic Stay
Part of the appeal of bankruptcy to at-risk homeowners is the automatic stay: once the bankruptcy is filed, the court prohibits your creditors from contacting you or soliciting payments. Foreclosure counts as a form of solicitation, so your lender can actually get into trouble for foreclosing on your home. At the very least, this will buy you some time while you try to get your finances back in order.
Bankruptcy ChaptersThe effect of bankruptcy on your mortgage also depends on what chapter you file under. Individuals can file one of two types of personal bankruptcy: Chapter 7 and Chapter 13. The latter is considered more useful in preventing foreclosure because it simply reorganizes your debt into a repayment plan, where you make payments to a bankruptcy trustee over a period of three to five years. The payments are calculated according to your paying capacity after essentials, such as rent or mortgage, have been deducted from your income.Chapter 7 bankruptcy, on the other hand, involves selling off your assets and using the proceeds to pay your creditors. This means you may be putting your property at stake in exchange for getting rid of the mortgage—a setup not much different from a foreclosure. A Chapter 7 bankruptcy can still be used to stop foreclosure if your home is listed as an exempt asset, meaning it can’t be sold under Chapter 7 terms.
New laws also allow people to negotiate a loan modification while in bankruptcy. Basically, while you’re making payments on a Chapter 13 plan, your lender can still screen you for loan modification—a change in the terms of your mortgage to lower your monthly payments—or work out other foreclosure prevention options. This way, you can keep making payments and safely keep your home. And since the bankruptcy will have eliminated some or all of your unsecured debt (such as credit cards), there’s less risk of defaulting and facing foreclosure again.
About Author : The writer of this article is Wystan North. He has made his mark by writing on legal issues especially on bankruptcy terms. The author regularly writes on bankruptcy related issues like bankruptcy lawyer, Filing Bankruptcy In Ohio, filing chapter 7 and chapter 7 bankruptcy etc.
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