Foreclosure: The Bankruptcy Option

With a house entering foreclosure every 13 seconds, many families are searching for ways to save their homes from becoming bank-owned properties.

Some Americans are finding they can save their homes by filing bankruptcy.

Last year alone, more than one million people chose to file bankruptcy. Stopping foreclosure was one of the main reasons why many decided to seek the protection of bankruptcy.

With foreclosures still on the rise and the recession wearing on Americans, it’s expected that even more people will file bankruptcy in 2009.

If you’re facing foreclosure of your home or repossession of your property, it may be time to seriously consider filing bankruptcy as way to possibly protect your property and resolve your debt.

Bankruptcy 101: Chapter 7 vs. Chapter 13

The U.S. Bankruptcy Code offers consumers two personal bankruptcy options: Chapter 7 and Chapter 13.

Both have unique qualities and both work to get the debtor out of debt.

Chapter 7 Bankruptcy: Liquidation Bankruptcy

Chapter 7 bankruptcy was designed to help people who are struggling to make it each month and have no way to repay their current debts.

Chapter 7 offers the debt discharge, which is an elimination of unsecured debts (debts not connected to property, such as credit card debt, medical bills and utility bills).

Of course, who wouldn’t want to eliminate debt? But Chapter 7 isn’t right for everyone and a person must qualify to file it by proving to the court hr or she doesn’t have enough income to pay the bills.

Additionally, under Chapter 7, the bankruptcy court has the right to liquidate (sell) a person’s non-exempt property, which can include a filer’s home.

For this reason, those filing bankruptcy to stop foreclosure typically choose to file Chapter 13 bankruptcy over Chapter 7.

Chapter 13 Bankruptcy: Reorganizational Bankruptcy

Chapter 13 bankruptcy works by setting debtors on repayment plans so they can get back on track with their debts.

Chapter 13 was also designed to protect property, such as a car or home.

In most cases, foreclosure and repossession efforts are stopped immediately after a person files their bankruptcy petition with the court.

This can be a tremendous relief for families who were threatened with foreclosure and it can allow a person the breathing room they need so they can focus on repaying their bills.

Next, under Chapter 13, the debtor’s debt is analyzed and a repayment plan is agreed-upon by the debtor, his or her bankruptcy lawyer, the bankruptcy court and the debtor’s creditors.

The debtor then makes one lower monthly payment directly to the bankruptcy court and as long as he or she stays current with payments, the debtor is typically allowed to keep the property he’s working to pay off (such as a home or car).

The repayment plan typically lasts between three and five years and if all payments are made according to schedule, the court has the option of discharging the debtor’s remaining unsecured debts.

Keep in mind, bankruptcy isn’t always the right answer for everyone.

If you’re overwhelmed by debt and worried about losing your property, a bankruptcy lawyer can help you determine whether filing bankruptcy could help you.