|
Bankruptcy and Foreclosure
There are two different types of bankruptcy that affect the
average person. It is important to first note that bankruptcy
is not a good option in most situations and should not be
used unless it is necessary. It is costly and can damage credit.
It may be slightly better than having a property foreclosed
on, but if there are other options available, these should
be considered first.
The first type of bankruptcy is a Chapter 7 bankruptcy. The
advantage of this type of bankruptcy is that all debt will
be wiped out. However, under new bankruptcy laws, not everyone
is eligible to file for a Chapter 7.
Income must be under a certain level for Chapter 7 bankruptcy
to be an option. Another problem for people facing potential
foreclosure is that the person filing bankruptcy must take
a Credit Counseling course within six months before filing.
For people in a pinch and facing foreclosure with very little
time, this may be too much to accomplish in the time given.
The way a Chapter 7 works is that the debtor turns over most
of his/her property to a trustee who then sells it and pays
creditors with it.
Chapter 13 bankruptcy is the other way to file and is becoming
more common with new bankruptcy laws. Under Chapter 13 bankruptcy,
the debt is not wiped out, but the person filing bankruptcy
must make regular payments on a payment plan that is generally
three to five years in length at which point the debt will
be released.
The law requires that anyone filing Chapter 13 must have
a regular source of income. With Chapter 13, a property owner
has a much better chance of being able to keep the property,
so this type of bankruptcy is typically what would be recommended
for someone facing foreclosure.
When filing the bankruptcy, a "stay" is put on
all assets which means you cannot buy or sell anything. This
does temporarily protect the home from foreclosure, but creditors
can also ask that the stay be removed and the foreclosure
process will begin where it left off prior to filing the bankruptcy
if the creditor is successful in having the stay on the property
removed. What's more, if Chapter 13 bankruptcy was filed
and payments are not kept current, the foreclosure can still
take place.
Some people believe that filing bankruptcy will allow them
to walk away clear and free with few repercussions, and some
are too quick to advise a person to file. But if the individual
filing bankruptcy does not realize that all responsibility
is not gone and that he/she will have to be very careful,
property could still be lost in foreclosure.
A person's credit will take a hard hit and the bankruptcy
can make taking out future loans or mortgages a greater challenge.
Considering these points, avoiding bankruptcy is almost as
important as avoiding the foreclosure itself and is only an
option to consider when other measures have failed.
Back to Bankruptcy
Information
| 
