Thursday, October 3, 2013

How does Bankruptcy help stop foreclosure?

How Does Bankruptcy Help Stop Foreclosure?

There are two common types of personal bankruptcy, Chapter 7 and Chapter 13. For people trying to stop home foreclosure, Chapter 13 may be the more powerful choice.
In Chapter 13 bankruptcy, a filer works with the bankruptcy court to create an affordable debt repayment plan. Under this repayment plan, filers pay off debts, including mortgage debts, to their creditors over a course of three to five years.
That, in a nutshell, is how Chapter 13 helps eliminate debt. Here's how Chapter 13 could help stop home foreclosure:
  • Automatic stay. Immediately after a person files for Chapter 13, the automatic stay kicks into action. This court order usually temporarily halts foreclosure actions that have been initiated against a filer's home.
  • Payment plan. Under the Chapter 13 payment plan, a filer can usually stretch out overdue mortgage payments in a more reasonable payment schedule. This may also allow filers to keep their homes.
  • Discharged debts. Once mortgage payments are completely current through the repayment plan, some unsecured debts may be discharged at the end of the process, allowing a person to free up money to continue making regular mortgage payments, rather than pay other debts.
As you can see from the information listed above, there are several potential ways that filing bankruptcy could help stop foreclosure.

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