When personal debt reaches unsustainable levels, people have to start making difficult financial decisions. Do you pay the electricity bill, or do you buy groceries? Will you have to use credit to pay your basic expenses again this month, even though you’re dangerously close to maxing out your card?
In some cases, people may find themselves so overextended that they can’t even pay their mortgage every month. Once you miss one or two payments, you become vulnerable to foreclosure proceedings. Whether you have lived in your home for two or 20 years, chances are good that you don’t want to lose the equity you’ve accumulated and the investments you’ve made in your home.
Once you receive notice from your lender about pending foreclosure proceedings, you need to take prompt action or risk the loss of one of your most important assets. Bankruptcy can potentially offer you several tools to help you retain ownership of your home if you can’t pay the past-due amount immediately when you get your first foreclosure notice.
Whatever kind of bankruptcy you file, you receive an automatic stay
Once your lender notifies you of pending foreclosure proceedings, an automatic stay could be the most important legal benefit bankruptcy provides. The automatic stay prevents any collection activity until the bankruptcy court reviews your petition and either denies or approves your discharge.
During that time, you don’t have to worry about losing your home, the repossession of your vehicle or pending creditor lawsuits, as collection activity must cease. You can request the dismissal of all of these collection efforts and advise collection agents who contact you to stop doing so.
If you file chapter 13 bankruptcy you can potentially negotiate your mortgage
In Chapter 13 bankruptcy, individuals restructure their debts as a way to at least partially repay their creditors prior to their discharge. This process can involve negotiating new terms with a lender and then reaffirming the debt for secured debts, such as mortgages or vehicle loans.
Lenders may also consider negotiating more favorable terms on a mortgage if you undergo other forms of bankruptcy, such as Chapter 7 bankruptcy. After all, they will likely lose money if they have to foreclose on your home. Working with you can benefit them more than fighting you in many cases.
Bankruptcy frees up your income to pay on your mortgage
When you file for bankruptcy, if you receive your discharge, you will have fewer unsecured debt obligations, which means you will have more income every month to use to pay your mortgage and other cost-of-living expenses. By eliminating debts that put pressure on your budget, bankruptcy can make paying your mortgage and other bills much easier to manage.