Over the last couple of years, many Americans have been facing the fact that foreclosure might be on their horizon. Looking for a way out can sometimes be complicated. The government has come up with programs like HAMP that never really panned out. Some banks offered loan modifications that had a success rate of around 5% for those who applied. What most people don't know is they have an ace in the hole by filing bankruptcy. Filing chapter 7 bankruptcy usually will stop foreclosure temporarily.
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In some situations the debtor might be able to free up enough cash by eliminating all their unsecured debts, making their mortgage affordable. This all depends on how far behind the debtor is. In this situation, to stop foreclosure, the lender might require the debtor to come up with all their back payments in order to avoid the foreclosure sale. This can get complicated and should not be attempted as a do-it-yourself project but with the help of a bankruptcy attorney.
Americans have a true ace in the hole if they decide to file Chapter 13 bankruptcy. A Chapter 13 bankruptcy was created for people who could afford to pay back some of their debts over a period of time. One of the benefits of the Chapter 13 plan is the ability to keep all of your property using the power of the US legal system in the way of the automatic stay. Back in 2005, the bankruptcy code was amended to stop people that were abusing the bankruptcy system. Congress felt that many individuals had the ability to pay back their creditors at least something.
Chapter 7 bankruptcy was changed to include a means test that required the debtor to qualify to file bankruptcy based on their income and expenses. This meant that individuals with higher incomes would be required to pay back their debts at least partially via Chapter 13 bankruptcy. Fast forward to 2008 and the real estate market collapsed. Many individuals that previously only considered filing Chapter 7 bankruptcy, all of a sudden saw the benefits of Chapter 13 bankruptcy.
It was like Chapter 13 was created for the real estate market decline. As the housing market went bust, most Americans saw their equity go out the window. Many people who bought at the peak of the market were all of a sudden upside down drastically on their home. For the individuals that didn't lose their jobs and still had a good income coming in, saw a Chapter 13 bankruptcy as an opportunity to renegotiate their debts. When filing Chapter 13, the debtor and their bankruptcy attorney are required to come up with the feasible repayment plan that will last 3 to 5 years.
With Chapter 13, debts are paid by priority with secured at the top of the list and the unsecured debts, like credit cards, at the bottom. This allows the debtor to prioritize their debts and pay their mortgage, car loan etc. first and if there is any left over their credit cards will get a few nickels. The debtor will be able to keep their home and stop foreclosure because Chapter 13, just like Chapter 7 bankruptcy, shares the power of the automatic stay stopping all collection activity and legal activity against the debtor. When it comes to protecting real estate, Chapter 13 bankruptcy really shows its power and benefits. A Chapter 13 can be complicated and one should definitely consult with a bankruptcy attorney before moving forward.
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