What is a Chapter 7 Bankruptcy and Can it Help me Stop a foreclosure_

Chapter 7 bankruptcy is the type of bankruptcy filing most often used by individuals.  It grants protection to consumers from creditors and collection efforts.  It can eventually erase most debts.  Very few Chapter 7 filers are forced to sell their possessions or hand over cash to their creditors.  Chapter 7 is primarily intended for individuals and married couples.  Bankruptcies that are filed under Chapter 7 are called liquidation bankruptcies.  This is because filers agree to liquidate everything they own except for some exempt property.  But this action rarely happens because most Chapter 7 filers have no nonexempt assets to sell. For most encumbered debtors, a Chapter 7 filing can:

• Discharge many debts
• Stop repossession and foreclosure attempts
• Stop debt collectors from trying to collect the money

Chapter 7 bankruptcy can stop foreclosure temporarily.  Lenders are not allowed to foreclose on a home when the owner files for bankruptcy.  Both Chapter 7 and 13 bankruptcy places an immediate hold on any foreclosure sales.  Hopefully during this time the borrower can continue to make payments and get up to date on past due payments.  Bankruptcy itself does not usually stop foreclosures from happening permanently.  Bankruptcy allows time for the borrower to get up to date on any delinquent payments.  It immediately places a hold on any foreclosure activity by the lender.  

Keeping your house will depend on several things.  One is can you continue to make your mortgage payments after you file for bankruptcy.  If you cannot afford your mortgage then more than likely you will lose your home.  If you file for Chapter 7 bankruptcy, you can declare a certain amount of property exempt.  This means the court cannot force a sale from it.  The equity amount must be less than the exemption amount.  If your equity is over the exemption limit then you most likely will be forced to sell your home to pay debts.  

Chapter 13 bankruptcy is different in that it generally allows debtors to keep their home if a payment plan can be arranged and if the debtor can make the payments.  Chapter 7 bankruptcy can allow you to stay in your house longer because of the foreclosure stay during the bankruptcy filing.  It can also stop the mortgage company from trying to collect any deficiency from you after taking the house.  If you are underwater in your home due to the balance of your mortgage being higher than the value of your house, or you can’t afford the monthly payments, then Chapter 7 Bankruptcy may be right for you.  

Here’s how:

• Once you file for Chapter 7 bankruptcy you are legally protected from actions to collect a debt, including foreclosure.
• Filing bankruptcy can give you an additional 3 months or longer in the house without having to pay the mortgage
• The Chapter 7 bankruptcy discharges any deficiency debt in case the house sells at an auction for less than the mortgage.
• The Chapter 7 bankruptcy protects you against the deficiency debt even if you file for bankruptcy before the foreclosure.  A Chapter 7 bankruptcy can be a very powerful tool in this regard.

If you have fallen behind on your house payments, but still have a large enough income to pay for the mortgage then you are a good candidate for Chapter 13 bankruptcy.  This is especially true if you have equity in your home and would like to keep it.  Chapter 13 allows you to pay over a period of 3-5 years the past due payments while you make the regular monthly mortgage payments.  After the past due payments are paid off, the mortgage will no longer be considered in default and you can keep your home.  It’s best to contact an experienced professional bankruptcy attorney in Montgomery to guide you through the bankruptcy process and see if a Chapter 7 or 13 bankruptcy would be the best fit for your needs.

Shazaib Khatri134

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