Bankruptcy
is Usually Only a Temporary Stop to Foreclosure
There's not enough money
at the end of all the bills you have to pay. You need one more paycheck
to make ends meet. Costs of living keep going up and your monthly
paycheck isn't keeping up with the price of gas, the cost of food
and everything else you value in your life. You can't save anything
because all your money goes to paying bills and supporting yourself
and/or your family. And then . . .
One day you receive a
piece of paper in the mail called a "Notice of Default"
or a process server hands you a "Lis Pendens." Either
way, both are bad news because they mean your lender has initiated
foreclosure proceedings against you (in either a non-judicial or
a judicial foreclosure state respectively) because you owe back
payments typically three months worth. . . or more.
And then you start thinking,
"Maybe I could cheat fate by filing for bankruptcy. That will
wipe out all my debts. I can stop the foreclosure, keep the house,
and the lender can't do anything about it." Well, think again!
If you file for personal
bankruptcy under Chapter 7 a so-called "automatic stay"
is placed on all your creditors, including the foreclosing lender,
by the court. HOWEVER, the stay is only a temporary fix to the situation.
Chapter 7 never permanently
stops home foreclosure. It only gives you relief from unsecured
creditors like credit cards and prevents certain creditors from
pursuing collection action against you. It does NOT discharge debts
such as taxes, child support, alimony or student loans, nor can
it give you relief from other secured creditors like your
lender whose debt is secured by the home you're living in.
In fact the "automatic
stay" is only effective so long as the court wants it to be
in place. At any time the court can grant your lender's motion for
"relief from the automatic stay." Once the court grants
that motion the foreclosure against your home can proceed to conclusion.
One viable exception
does exist, however, by filing for a Chapter 13 bankruptcy. Under
Chapter 13 you are allowed to sit down with your creditors and arrange
a payment plan to pay back what you owe them over a given length
of time and usually on a lower payment schedule. Once accepted,
the creditors, like your lender, must abide by the terms of the
plan.
Call it financial reorganization
or a workout plan, any way you look at it Chapter 13 is a good way
to save your home from foreclosure, and can indeed stop foreclosure
so long as you continue to make the payments agreed to under the
plan until all debt owed is totally paid off.
In essence, then, through
a Chapter 13 debt reorganization plan you can cure the default and
save your home. However, you must realize up front that not everyone
qualifies to file for bankruptcy. There are certain threshold qualifications
that must be met which were tightened up when the U.S. Bankruptcy
Code was revised a few years ago.
Additionally, there are
court costs to be paid, AND, of course, the homeowner must hire
an attorney who is going to want to get paid too!
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