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2 ways bankruptcy can help those at risk of losing their homes

On Behalf of | Jan 5, 2023 | Bankruptcy

You may have spent years saving for the down payment on your home and even longer making mortgage payments. Unfortunately, until the day that you submit the very last payment due, your home is still at risk of foreclosure.

Your lender can potentially take you to court if you miss enough payments and take ownership of your home away from you. There are many laws that limit the ability of lenders to foreclose on someone’s primary residence. The lender typically needs to provide written notice and must comply with strict rules regarding how they notify the owner.

Usually, property owners have an opportunity to redeem the home, which means that they can pay off what they owe in full. For many people, redemption isn’t an option unless they are in the final months of their mortgage. Bankruptcy can help those worried about foreclosure in two different and very important ways.

1. Bankruptcy stops aggressive collection activity

Those who believe they may end up in court in the next few weeks because of missed mortgage payments may breathe a little easier after filing for bankruptcy. The same day that they submit their paperwork to the courts, they receive an automatic stay on collection efforts.

Until the courts grant the bankruptcy or dismiss the bankruptcy filing, the person who files will have protection from collection activity including lawsuits and foreclosure efforts. The right timing for bankruptcy could delay foreclosure efforts and could give you an opportunity to protect your interest in the property.

2. Bankruptcy can help you renegotiate your loan

There are several options for a secured loan like a mortgage during bankruptcy. You could release the collateral property and ask the courts to discharge the debt, but that is often not what people want to do with their homes. Instead, many people choose to reaffirm their mortgage so that they can keep the home and continue making payments on it until they finally own it entirely.

Negotiating different terms for your loan, such as extending how long you have to pay back the loan or allowing you to make the missed payments at the end of the mortgage instead of immediately, could make a big difference for you if you believe you will soon lose your home to foreclosure. Lenders are more likely to cooperate in reworking alone in a Chapter 13 filing specifically, and borrowers who have legal representation may find it easier to handle this complex process.

Realizing that bankruptcy could help you protect the money you have invested in your primary residence could help you as you struggle with your unsustainable financial situation. Reaching out to the Quinn Law Firm at 814-833-2222 can help you get more information about foreclosure and bankruptcy.

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