It is true that filing for bankruptcy can stop a foreclosure proceeding. However, that hasn’t always resulted in relief from mortgage debt and large monthly payments. Many people have filed for bankruptcy in the past and found their foreclosure proceedings halted, but only to realize they still had to find a way to repay their missed mortgage payments. Those who have second or more mortgages or home equity loans, the complications increased.
Relaxing The Rules
Since bankruptcy laws vary by state, not all states handle foreclosures the same way. Some states are considered judicial states, in which the court system oversees the foreclosure process and selling of the property. Non-judicial states handle foreclosures outside of the court system, which means that a foreclosure can be processed very quickly and with little warning.
Some judicial states have begun to relax their rules regarding foreclosures and are now allowing underwater homeowners to discharge second or more mortgages in bankruptcy. By allowing for a second or more mortgage to be converted into an unsecured debt, the balance from these additional mortgages can be eliminated while the original mortgage can be repaid through Chapter 13. The idea is to provide homeowners with additional relief from their mortgage debts by lowering their repayment amounts to a level they can afford.