Most people spend decades paying off their mortgages. They may invest as much as a third of their income toward their monthly payments. They may dedicate even more of their income toward repairs and improvements within the home.
The equity that they accrue may eventually become the largest single contributing element to their overall personal wealth. That equity could be at risk if they fall behind on their mortgage payments. The home is the collateral property for the mortgage. In plain English, the lender has the option of legally assuming ownership of the home in cases where the borrower defaults.
Those concerned about the possibility of upcoming foreclosure proceedings may want to consider personal bankruptcy as a means of preventing foreclosure. Chapter 13 bankruptcy allows a homeowner to eliminate certain debts without liquidating equity.
How might Chapter 13 bankruptcy proceedings help people protect their homes?
By stopping collection activity
A Chapter 13 bankruptcy typically requires between three and five years of payments. The entire process is quite lengthy. Thankfully, filers do not have to wait for their discharge to obtain relief from collection efforts. The courts grant an automatic stay when people file for bankruptcy. Automatic stays prevent creditors from making collection phone calls. They also usually result in the dismissal of pending collection-related legal cases, including foreclosure proceedings. Homeowners can obtain a respite from collection efforts that may allow them to evaluate their circumstances and plan.
By incentivizing modifications
Lenders do sometimes agree to adjust mortgage terms for the benefit of homeowners who have fallen behind on payments. Other times, they may resist proposals to modify a mortgage. There is more incentive to cooperate with homeowners during Chapter 13 proceedings. Lenders may agree to adjust the terms of the mortgage to make it more sustainable and manageable for the property owner.
By eliminating secondary pressures
A successful Chapter 13 bankruptcy culminates in the discharge of eligible debts. People cannot discharge a mortgage and retain the collateral property. However, they can eliminate medical debts, credit card balances and other financial obligations that put pressure on their household budgets. They may then find it easier to make their payments on schedule. Homeowners worried about preserving their equity may need help evaluating their options.
The choice to file for Chapter 13 bankruptcy before foreclosure occurs can help people prevent a difficult financial situation from spiraling completely out of their control. Reaching out to the team at Quinn Law Firm by clicking here or calling 814-833-2222 can help those concerned about foreclosure explore whether bankruptcy could be the right solution.
