One of the most notable features of the bankruptcy process it the ability to manage and resolve mortgage debts, thereby protecting a home from foreclosure. Depending on a person’s financial situation, either type of bankruptcy case may be able to halt or reverse the foreclosure process. The differences really lie in the details of the debtor’s situation.
Filing For Bankruptcy
A Chapter 7 case can be helpful in halting the foreclosure process, but handles mortgage debts much differently than a Chapter 13 case. In Chapter 7, a debtor may find that their non-exempt assets are sold in order to repay creditors. This is rarely the case with a mortgage loan as the house is considered an exempt asset. However, Chapter 7 bankruptcies do not resolve mortgage debts in the way a Chapter 13 case can. Instead, mortgage payments and mortgage debt collections are put on hold while the debtor is in the bankruptcy process. Once the debtor exits bankruptcy, the payments will resume as usual and the lender may be eligible to collect on the mortgage debts.
A Chapter 13 case is an active debt reorganization process, which allows for a debtor to develop a repayment plan that suits their budget. This repayment plan includes mortgage debt payments, as well as other debts. Unlike a Chapter 7 plan, Chapter 13 allows for a more permanent solution to mortgage debts. The repayment plan generally includes both the required mortgage payment and any delinquency payments. It also guarantees that the home will not be eligible for foreclosure and is, therefore, protected from lenders.