Those who are facing foreclosure are often looking for solutions to keep their home. They know that they’ve missed payments, but they want to get their finances in order. Keeping the home seems like the most important thing they can do.
For some, one tactic to consider is declaring bankruptcy. There are two ways in which this can help with the foreclosure.
An automatic stay
First and foremost, filing for bankruptcy creates an automatic stay, which instructs other courts to pause the court cases that they are processing. Essentially, the bankruptcy filing has to be addressed first. Only after it has concluded can the foreclosure continue.
This automatic stay does end, so it’s not a long-term solution. But it can put the foreclosure on hold for a few months, allowing a person to stay in their home.
Next, a bankruptcy filing can help people re-organize their finances so that their debt becomes affordable. With Chapter 13, this is done with a repayment plan. With Chapter 7, it is done by liquidating assets.
But either way, bankruptcy helps to eliminate these other types of debt. It gets rid of credit card debt, medical debt and the like. After the bankruptcy has concluded, that person may be able to afford their mortgage again, now that they are not overwhelmed with other sources of debt, and even get current on their back payments. In this sense, bankruptcy can help them work toward a long-term solution to keep their home.
What steps should they take?
This situation can be quite complicated. It’s very important for homeowners with these financial challenges to understand all of their legal options. This may include filing for bankruptcy and seeking a fresh start.