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Foreclosure Survival Guide
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Foreclosure Survival Guide (1st Edition)
File for Chapter 7 Bankruptcy
If you are current on your mortgage (or can get current in a hurry) but have no room in your budget to continue making your payments, going through Chapter 7 bankruptcy can make your mortgage more affordable—and so help to prevent foreclosure in the long run. Chapter 7 bankruptcy is quick (about three months). It’s also inexpensive if you represent yourself, which many people do. Chapter 7 bankruptcy will wipe out your unsecured debt—for example, credit cards, personal loans, medical debts, and most money judgments. This will free up whatever income you were using to pay down those debts so you can put it toward your mortgage payments.
Even if you have decided to leave your house, bankruptcy can be of great assistance in keeping you in your home for a few extra months free of charge, and giving you a fresh start by wiping out liabilities arising from your mortgages or the foreclosure itself.
Despite these benefits, Chapter 7 bankruptcy may not be appropriate for you. For example, you may have more equity in your property than you can keep in a bankruptcy, which would trigger an involuntary sale of your home. (Chapter 7 bankruptcy is discussed in Ch. 6.)
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Who qualifies | Anyone whose household income is below the state median OR who passes a “means test” | Anyone who has enough income to propose a reasonable repayment plan |
| Effect on foreclosure | Delayed three to four months | Delayed; possibly avoided |
| What happens to your property | You keep everything that is legally exempt; the rest is sold to repay your creditors | You keep your property |
| What happens to your mortgage | The amount you owe is discharged, but the lien created by the mortgage remains, and you must make payments to avoid foreclosure | Your first mortgage will probably remain intact; second and third mortgages can be eliminated if they are not secured by the house’s value |
| What happens to your debts | Most debts are wiped out (discharged); some (child support, back taxes) survive | You repay a percentage of debt over three to five years, under a repayment plan you propose to the court; if you finish the plan, the rest of the debt is wiped out |
| How long it takes | Three to four months | Three to five years |
| Will you need a lawyer? | Probably not | Usually a good idea |