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Can I save my home by filing for bankruptcy?

Although the recession of 2008 is long behind us, many Floridians continue to face insurmountable debts, particularly expensive mortgage payments. Although some lenders may be willing to modify a mortgage loan or agree to a short sale, homeowners who default on their mortgage run the risk of a foreclosure. It is possible to stop a foreclosure proceeding, however, by seeking protection under the Bankruptcy Code.

What is a mortgage foreclosure?

If a homeowner fails to make full and timely payments of principal and interest on a mortgage, the bank or mortgage company may initiate a foreclosure proceeding. Basically, a borrower who misses a payment and does not make it within 30 days is said to be in default. The lender is required to notify the borrower that the payment is delinquent and must be made in full. If the loan remains delinquent after 3 to 6 months, the lender will foreclose on the property. In this situation, the lender will evict the homeowner, seize the dwelling, and sell the property at a public auction.

Not only will you lose your home, a foreclosure will lead to long-lasting damage to your credit rating. Although there are alternatives, such as a loan forbearance or a deed in lieu of foreclosure (where the title is signed over to the lender), some borrowers may be able to stop the foreclosure process by filing for bankruptcy.

How does filing for bankruptcy stop a foreclosure?

Today, changes to the bankruptcy laws have made it more difficult to file for Chapter 7 bankruptcy, and borrowers who take this route are still at risk of losing their home. However, a Chapter 13 bankruptcy is designed to enable individuals to reorganize their debts, including a delinquent mortgage. In this scenario, the lender and homeowner can agree to a time period for the repayments to be made.

However, for the plan to be approved, the borrower must have sufficient resources to make those repayments while simultaneously making the current payments. If the borrower adheres to the repayment plan, foreclosure can be avoided. On the other hand, if the borrower fails to make both the repayments and current payments, the lender can proceed with the foreclosure.

The Takeaway

The decision to file for bankruptcy requires careful consideration since it will impact your ability to borrow money in the future. Nonetheless, if you are at risk of losing your home, seeking bankruptcy protection may be the best solution. By engaging the services of an experienced bankruptcy attorney, you can explore all of your options.