Facing foreclosure can be a daunting experience, and understanding your options is crucial. This guide will give you a brief education on bankruptcy, explain how it works, and discuss its potential benefits and drawbacks. Additionally, we will explore an alternative solution that may better suit your needs.
This is also known as liquidation bankruptcy. It involves the sale of your assets to pay off creditors.
Here’s how it works:
Temporary Relief: The automatic stay provides temporary relief from foreclosure, buying time for the homeowner.
Potential Loss of Home: If the homeowner has significant equity (more than $21,500 if single or $43,000 if married and filing jointly), the house may be sold to repay creditors. However, if the equity in the home is less than that, the homeowner may keep the home.
No Long-Term Solution for Mortgage Debt: Chapter 7 doesn’t provide a long-term solution for mortgage arrears. The homeowner must pay the lender what it is owed.
The court sets a 3 to 5 year repayment plan where all disposable income goes to paying creditors.
How it works:
Automatic Stay: Filing for Chapter 13 initiates an automatic stay, temporarily halting foreclosure proceedings and other debt collection actions.
Repayment Plan: Debtors provides a detailed income and expense report, and repayment plan gets set by the court where both past-due amounts of all debts and ongoing mortgage payments are being made.
Risk of Dismissal: Failure to make payments as scheduled can result in the dismissal of the case and a resumption of foreclosure proceedings
The plan leaves little room for unexpected financial changes, such as medical emergencies or job loss.
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