How Does Bankruptcy Save a Home from Foreclosure?

With the recent economic meltdown resulting from overambitious lending practices, sub-prime loans, and resulting impact on the housing and job market, it’s no wonder that the rate of foreclosures has increased so dramatically.

For homeowners whose bank or lender will not work out a reasonable loan modification, or otherwise cannot keep up on their mortgage obligations, bankruptcy is becoming a more common solution to stave off foreclosure and stay in their home.

Filing Bankruptcy Stops a Foreclosure

For homeowners who are facing a foreclosure and even those who have already been foreclosed upon, filing a bankruptcy petition will stop the process, as long as the sherifs sale has not occurred yet.

At the very least, the bankruptcy process will stop the foreclosure temporarily and allow homeowners the opportunity to find a way to keep the home.

During the Bankruptcy Process

During the bankruptcy case, homeowners will have some breathing room and time to find out if they can reasonably maintain their mortgage obligations.

For many homeowners, getting credit card bills, medical bills, personal loans and other dischargeable debt erased can mean the difference between being able to make a mortgage or not.

Catching Up on Delinquent Payments

If possible, the best way to keep a house after stopping a foreclosure is to work out a plan to get current on the mortgage. In a chapter 13 case, this can be made into the monthly payment plan.

Often times, using a bankruptcy can help homeowners force the lender into a modified loan, making monthly payments much more reasonable.

Lien Stripping

For homeowners with more than one mortgage who have become underwater, there is a possibility of “stripping off” a second and/or third mortgage if the primary mortgage amount is greater than the value of the home.

This practice is not yet legal for a primary residence, but as of this writing, legislation is underway to make it an easier option for homeowners whose home value has dropped below the original loan amount.

Get Professional Legal Advice

Bankruptcy laws are complex, and when a home is involved it becomes critical to get legal advice from an attorney experienced in bankruptcy law.

Talk to a Bankruptcy Lawyer to find out if bankruptcy is a good legal option to get out of an unmanageable financial situation and save your home.