Anyone facing foreclosure knows the stress involved with the process. Finding a way to avoid foreclosure can become a daunting task. Although there are several ways to keep a home out of foreclosure, not all are going to provide the same benefit. One option is to file a Chapter 13 bankruptcy, which can immediately stop the foreclosure process and begin the process of resolving mortgage debts.
Chapter 13 Benefits
The biggest advantage in filing a Chapter 13 bankruptcy is the issue of an automatic stay. This order is filed immediately after the Chapter 13 petition is filed and halts the foreclosure process. An automatic stay also requires that creditors terminate any collection efforts on the delinquent account.
A Chapter 13 bankruptcy can alleviate mortgage debts in two ways. The first is the Chapter 13 repayment plan, which allows for the debtor to develop a plan to repay their delinquent mortgage payments over several years. In some cases, the repayment plan may also require a reduction in interest rate or waiver of delinquency fees. Repaying debts through Chapter 13 can assist a homeowner in getting caught up with their payments, at a pace they can afford.
Chapter 13 bankruptcies can also resolve mortgage debts by removing second mortgages or home equity loans. This process is known as lien stripping. Lien stripping legally removes excess debt on some mortgages turning the debt into an unsecured debt, which is then eliminated. However, lien stripping may only be possible on homes that have a current appraisal value less than the balance of the first mortgage.