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Can bankruptcy save your family home?

On Behalf of | Feb 22, 2022 | Home Foreclosure |

Of all the consequences of debt, losing the family home is perhaps the most severe—and frightening. If you are behind on your mortgage payments and creditors are threatening you with foreclosure and other collection actions, remember, you have legal options at your disposal. The most powerful of these options, with the full force of the law behind it, is bankruptcy.

Bankruptcy stops home foreclosure

As soon as you file for bankruptcy, a powerful legal injunction called the automatic stay goes into effect. This injunction stops creditors from foreclosing on your home, garnishing your wages and taking other collection actions against you. The automatic stay is not a permanent solution, but it will give you breathing room to make your next move toward lasting debt relief.

Chapter 13 bankruptcy

If your goal is saving the family home, Chapter 13 bankruptcy offers a proven path to debt relief that will take a few years. In a Chapter 13 bankruptcy, your debts, including outstanding mortgage payments, are consolidated into a payment plan you will work out with a bankruptcy trustee. Once the payment plan gains the approval of a court, you will be responsible for keeping up with payments over a three-to-five-year period.

At the end of the process, you should be caught up on your secured debts such as mortgage payments. Depending upon your specific circumstances, some of your unsecured debts may be discharged.

Chapter 7 bankruptcy

Chapter 7 bankruptcy completely wipes out certain types of unsecured debt, such as credit cards and medical bills. What will happen to your family home in a Chapter 7 bankruptcy? The answer depends on your specific financial situation.

  • You might be able to keep your home in a Chapter 7 if you are able to reaffirm the debt with your creditor and keep up with payments
  • Another way you might keep your home is if it is covered under bankruptcy exemptions
  • If you are willing to give up your home, Chapter 7 may allow you to discharge existing debt and forfeit the property to the liquidation process

Chapter 7 is not for everyone. You will have to take a financial means test first to determine if you qualify. If your income is too high, Chapter 13 might be the best option for saving your home and overcoming debt.

Remember you have options

The fear you may be feeling is understandable. A family home is much more than an asset. It’s the center of your life, where roots are laid and children grow up. No matter what got you here, whether it was a job loss, medical crisis or even a divorce, remember that you have powerful legal options that may allow you to break free from debt while keeping the property that is yours.