How To Use Bankruptcy To Fight The Threat of Foreclosure
If you are among the many people in Illinois facing foreclosure, you may have heard that bankruptcy can help you. However, since the help you will receive depends on the type of bankruptcy you file, it is important to understand how filing bankruptcy will affect your situation.
Chapter 7 offers limited help
Although Chapter 7 can help you quickly discharge credit card, medical and most unsecured debts, it is not as helpful with foreclosure. During this type of bankruptcy, if you do not bring your mortgage current soon after you file for bankruptcy, your lender may ask the court to lift the automatic stay and allow the foreclosure process to continue.
Because of this limited help, Chapter 7 may be a valid solution for you if you cannot pay your mortgage because of other debts. Since these debts would be quickly discharged, it would allow you to devote more of your income towards bringing your mortgage current.
Also, Chapter 7 should not be overlooked if your goal is to give up your house to your lender. If this is the case, Chapter 7 can help you by protecting you against the possibility of a deficiency judgment. This can happen if the lender sells your home for less than the amount remaining on your mortgage. In such cases, your lender may sue you for the difference. However, if you file Chapter 7, this type of debt is discharged, so you do not have to worry if this occurs.
Chapter 13 can save your home
Since Chapter 7 offers limited help with foreclosure, most people with a regular income that wish to save their homes from the auction block find that Chapter 13 is a better solution. This is because Chapter 13 gives you three to five years to catch up with your mortgage. During Chapter 13, your mortgage becomes part of the payment plan. Under the plan, you make a monthly payment towards your overdue balance over three to five years.
Assuming that you keep up with your monthly payments, your lender cannot restart foreclosure proceedings against you. Once you have made the final plan payment, you are caught up with your mortgage and resume making the same payments you made on it before you filed bankruptcy.
Chapter 13 is also a boon if you are underwater on a second mortgage. Under Chapter 13, this type of debt is regarded as unsecured and is discharged.
If in debt, get help
If you are facing foreclosure, it is only normal to feel scared. However, doing nothing will almost certainly result in the loss of your home. If you are in this situation, it is important to get the assistance of an experienced bankruptcy attorney. An attorney can outline the options available to you and recommend one that would best remedy your situation.
At Illini Legal Services, we offer a free, no-obligation consultation to each of our clients. During your consultation, we will take the time to listen to your financial concerns and assess your case and individual situation. We have five locations to serve you. Contact us today for help!
Illini Legal Services is engaged in the private practice of law and is not a public legal aid agency. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.