Will Bankruptcy Save You From Foreclosure?
When homeowners are facing foreclosure many feel that their last resort is to declare bankruptcy. Declaring bankruptcy stops the foreclosure process, and allows the homeowner to keep their home from being sold on the courthouse steps. Unfortunately though, the ability for the homeowner to keep their home usually only lasts a little while.
As a result of 2005's Bankruptcy Abuse Prevention and Consumer Protection Act (PDF) homeowners are only allowed to declare bankruptcy one time as a means of stopping a pending foreclosure. Homeowners who declare bankruptcy are put into a Chapter 13 bankruptcy plan which requires them to work out a payment plan to pay off all of their debts usually within 60 months. This is a flawed system because what it does is creates an additional payment for a homeowner to make in addition to the bills they already have. If a homeowner cannot pay their existing bills, how are they possibly going to pay yet one more monthly bill?
If the homeowner who declares bankruptcy is unable to keep up with their payments to the bankruptcy trustee as laid out in their bankruptcy plan, then they will be 'kicked out' of their plan (discharged) and the foreclosure process starts right back up. This time though since they homeowner declared bankruptcy already, they cannot declare bankruptcy again to stop the new foreclosure process.
The main point that homeowners should recognize here is that a foreclosure will damage your credit, but you will be able to recover. Declaring bankruptcy will damage your credit also, but again you will be able to recover. However, if you declare bankruptcy and then get kicked out of your plan and then are foreclosed on by the bank, your credit will not be so easily restored. Bankruptcy as a stalling tactic may not be the best course of action and before doing so you should consult with a qualified attorney in your state that is familiar with both foreclosure and bankruptcy law.
Comments
Great article. I really enjoyed reading it and u make some great points.
Mike
http://www.your-bankruptcy-information.com
Posted by: Mike Smith | July 19, 2007 3:28 PM