For many people, the risk of foreclosure has been looming around the corner in this wavering economy. Although the foreclosure crisis has slowed significantly over the last year, many more will still face this unpleasant reality in the coming years. Luckily, filing for bankruptcy is one way to help stop the threat of foreclosure and resolve mortgage debt trouble. However, there are some things to know about how this process works.
Each state has their own foreclosures laws that are a variation of one of the two types of foreclosure laws, judicial or non-judicial. In a judicial foreclosure state, the mortgage lender must follow a series of steps before they can pursue a court order against a debtor in court to foreclose on the home. This process can take months to even initiate, let alone, complete a foreclosure. In a non-judicial foreclosure state, the lender does not need permission of the court before initiating a foreclosure proceeding. In some cases, the foreclosure process can be complete in 30-45 days.
Depending on which state a debtor lives in can really impact how bankruptcy can help the homeowner. Time is significantly limited in a non-judicial foreclosure state, and a bankruptcy petition must be filed within the short window of opportunity if it is to have a chance at saving the home. For the debtor, this means that taking action quickly is crucial.
Another point to consider in either type of foreclosure state is how the bankruptcy process can actually help resolve mortgage debt. The bottom line is that there are no absolute guarantees. In a Chapter 7 filing, the debtor can keep their home if (a) they are not late on any mortgage payments, (b) have no equity in the home, or (c) can claim the home under exemption laws. Meeting any one of these requirements is highly dependent on the debtor’s unique financial situation. However, a Chapter 13 bankruptcy can offer a much higher level of protection guarantee since any missed payments will become part of the repayment plan.