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Despite stigma, Chapter 13 bankruptcy can prevent foreclosure

For many people in Washington, D.C., and elsewhere, filing for bankruptcy might feel like absolutely the last option. Nevertheless, it could be the perfect way to prevent foreclosure.

If you have tried every other option, and the date that will put you three months in arrears with your mortgage payment is approaching, it may be the appropriate time to file for bankruptcy. If you are not quite there yet, you may want to learn all about Chapter 13 bankruptcy to prevent foreclosure.

Time for action

You might have attempted, but failed, to negotiate refinancing the mortgage with your lender. Now, the mortgage holder wants the full amount that is outstanding on your home loan, and they want it soon. If you are unable to settle that amount, you will receive a notice of intention to foreclose.

Now is a good time to consult with an experienced bankruptcy attorney to learn how Chapter 13 can save your home. The U. S. Bankruptcy Code offers homeowners the protection of an automatic stay.

What is the automatic stay?

  • For the protection of the automatic stay, your bankruptcy filing must occur before the sale of foreclosure.
  • The bankruptcy court enters an automatic stay immediately upon your filing for bankruptcy.
  • This allows you stay in your home.
  • The automatic stay prevents all creditors from harassing you until the discharge date.
  • Wage garnishments, repossessions and other creditors' actions must stop immediately.
  • Creditors or collection agencies that want to contact you must communicate with your attorney.
  • Your lender can ask the court to lift the automatic stay, but such an application can take several months, which allows you time to get organized.

How does Chapter 13 bankruptcy stop foreclosure?

Although your lender might have refused to allow refinancing or an alternative repayment plan before, once you have filed for bankruptcy, the mortgage holder must work with you to agree on a repayment plan. This will involve a schedule to pay all arrears and interest over a period of three to five years. You will have to earn a steady income to maintain the payments, but it may offer you the opportunity to have a fresh financial start.

You will have to draft a repayment program for the court's approval, and if you maintain all the payments without defaulting throughout the bankruptcy period, you will keep the home. The court will appoint a trustee who will oversee the repayment of your debts in bankruptcy, and he or she may even be able to convert a second and third mortgage to unsecured debts that are dischargeable in bankruptcy.

Help is available

Although there is a stigma to filing for bankruptcy, more and more people realize that it might be the ideal way to protect their homes. Chapter 13 bankruptcy can also stop the spiral of credit card debt that you might be experiencing and allow you to regain financial stability. However, it is not something to tackle without the support and guidance of an experienced bankruptcy attorney who can explain the pros and cons of such a filing and protect you from creditors' harassment.

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