Staving Off Home Loss With A Bankruptcy
Is it possible to stop a foreclosure with a bankruptcy? You bet. But, it may not be the best option for you to pursue. If you are thinking about preventing foreclosure with a bankruptcy, it’s extremely important to weigh your odds and compare pro’s and con’s with other solutions that might be a better fit.
First, what are the pro’s of a Chapter 13 bankruptcy?
1. Stop Foreclosure
2. Reduce monthly credit card payments
3. One low monthly payment
4. Phone calls from creditors cease.
5. Possible relief from 2nd mortgage if upside down in home value.
What are the con’s of a Chapter 13 bankruptcy to stop foreclosure?
Here are some items to keep in mind:
1. Bankruptcy stays on credit report for 7 years
2. There is No Change to the Mortgage Terms
3. Bankruptcy is a public record for life
4. You still must repay all of your creditors (under Chapter 13 BK – Ch 7 absolves you of all unsecured debt.)
5. Mortgage arrears are ‘re-capitalized’, or placed back on the principal balance of the mortgage note amount.
6. Hassle and headache of dealing with the court system.
Are there alternatives to bankruptcy that will save your home from foreclosure? Absolutely. The main alternative is what is called a loan modification. A loan modification will actually change the terms of your mortgage note without the hassle and headache of going through the courts. Banks are willing to modify the terms of the mortgage in order to keep you in the home and prevent them from losing money caused from foreclosure. An example of a modification would be something like this: Currently your mortgage terms are a 9.5 percent interest rate on a 30 year fixed mortgage. The mortgage modification can reduce your interest rate from 7% to as low as 2% (sometimes even lower) and extend the terms of the mortgage to possibly 40 years.
Unfortunately, this is not something that is possible to achieve through a bankruptcy. Through bankruptcy, you will experience a temporary ‘stay of foreclosure’ and may not have to make a payment for a couple months, but in the end, your mortgage terms remain the same. This is because under current laws, bankruptcy court judges are only able to restructure ‘unsecured debt’, not debt that is secured by real property such as a home or vehicle.
One thing to keep in mind, however, is that if you have a 2nd mortgage, and the 2nd mortgage is valued at more than your property is worth, you may be able to received complete relief from the 2nd mortgage through Chapter 13 bankruptcy. Meaning, a complete forgiveness of the 2nd mortgage can occur because it is considered ‘unsecure’ in the eyes of the court. In other words, there is no value in the property to tie the 2nd mortgage to. If this is your scenario, then a Chapter 13 bankruptcy may be the right option for you.
Will Bankruptcy Prevent Foreclosure?
The question is: A chapter 13 bankruptcy will prevent foreclosure, but at what cost? You must weigh your options and discover for yourself the best solution. One great solution for complete debt relief as well as mortgage modification is a combination of a loan modification and unsecured card debt settlement, but that is a discussion for another time.
For legal help and a free financial evaluation to determine if you qualify for a loan modification, we recommend visiting LoanModUS.com . They provide a completely free financial examination and work with attorneys to help you legally obtain your mortgage modification. If you have Questions about loan modification companys, they can help.
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