Which type of bankruptcy can help me avoid foreclosure?

If you live in Charleston County and are struggling with foreclosure issues, you are not alone. According to RealtyTrac, one out of every 859 homes in the county is in foreclosure as of July 2015, putting it above the state average. Although you may think that there is little you can do to prevent the loss of your home, filing either Chapter 7 or Chapter 13 may be able to help you stop the foreclosure process. Although both types of bankruptcy may help, one would likely be more helpful than the other for you, depending on the specifics of your situation.

Chapter 7 relief

As soon as you file either type of bankruptcy, the automatic stay kicks in, stopping all pending foreclosure activity. Although the stay is a powerful tool, its effects are only temporary in Chapter 7. If you do not bring your mortgage current within a short time, your lender may ask the court to lift the stay, allowing foreclosure to continue.

Since relief from foreclosure is only temporary, Chapter 7 may be a sound plan if you are unable to afford your mortgage payments and would like to surrender your home to the lender. Filing Chapter 7 can ensure that you are no longer liable for a deficiency judgment in the future, if the lender later sells your home for a price less than the remaining amount on your mortgage.

Chapter 7 may also be of use to you, if you are having problems paying your mortgage because of other financial obligations. Since many debts, such as medical bills or credit card debt, are quickly discharged in this type of bankruptcy, it can allow you to devote more of your income towards becoming current on your mortgage. Sometimes, this is enough to allow you to catch up.

Chapter 13 offers extra help

Due to the limitations of Chapter 7, many facing foreclosure find that Chapter 13 is more helpful. Assuming that you have a regular income, Chapter 13 can help you by giving you more time to become current on your mortgage. During this type of bankruptcy, your overdue mortgage debt becomes part of the payment plan. Under the plan, you make monthly payments towards your debt over three to five years. The amount you must pay each month is derived from the amount of your disposable income, so the required monthly payment may be lower than your regular mortgage payment.

As soon as the court approves the plan, no foreclosure proceedings may be instituted against you for the entire repayment period, as long as you continue making payments each month. Once you have completed the repayment period, you have caught up on your mortgage and are free of most other debts you had before bankruptcy (i.e. not all pre-bankruptcy debts must be repaid in full under the plan; some end up discharged). You then resume making normal payments on your mortgage.

Additionally, if you are struggling with second or subsequent mortgages that, together with the value of your first mortgage, are worth more than the value of your home, Chapter 13 can be especially useful. Under Chapter 13, additional mortgages that are underwater are treated as unsecured debt. As a result, they end up discharged at the end of bankruptcy, meaning that you no longer have to repay them.

An attorney can guide you

If you are facing foreclosure, it is imperative to get the facts regarding your option as early as possible while they are the most numerous. An experienced bankruptcy attorney can review your situation and recommend the option that would best extricate you from your troublesome financial state.