You may have heard that one way to stop the foreclosure process and save your home is through bankruptcy. Although a bankruptcy can fulfill this expectation, there are some vast differences when filing for Chapter 7 versus Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
The most common thought of type of bankruptcy is Chapter 7, in which debts are eliminated through the bankruptcy court and you are freed from your debt liabilities. The problem with Chapter 7 bankruptcy is that it can leave you at risk for having some assets seized be creditors. This can become problematic for secured debts, such as a mortgage.
A foreclosure can be stopped through Chapter 7 in two ways. First, filing for Chapter 7 will place an automatic stay on credit collections. During this time, your lender will be required to halt the foreclosure process until further determinations are made by the court. However, this will not close the foreclosure proceedings and the court must rule regarding the debts owed. Second, the foreclosure process can be completely stopped if the house meets bankruptcy exemption criteria. If the home qualifies for bankruptcy exemption, then it will be safe from seizure and foreclosure by the lender. If the house does not qualify for bankruptcy exemption, Chapter 7 will not be able to save the house indefinitely and other options must be sought.
Chapter 13 Bankruptcy
The benefit of Chapter 13 is that is allows you to pursue debt relief without the risk of having your assets seized by creditors. Since your Chapter 13 plan will outline a repayment schedule, creditors will be repaid and you will be free to keep your property. A Chapter 13 bankruptcy is the best, of the two types of bankruptcies, to protect your home against foreclosure. Your Chapter 13 plan will arrange for your delinquent payments and any fees to be repaid over a specified period of time. While you work to repay your mortgage debts, your lender will be required to stop the foreclosure process and adhere to the Chapter 13 plan.