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Any attorney that specializes in foreclosures can help you navigate through your options, but you will need to consult a bankruptcy attorney if you are trying to decide if you should file bankruptcy.  Please be aware that only attorneys are legally allowed to advise you to file bankruptcy. This is due to the complex nature of bankruptcy law and the cumbersome amount of paperwork involved. If you do not file properly, your case could get denied or dismissed. You will not be able to file again for three to six months, depending on the reason for the court’s decision.  When facing foreclosure, filing bankruptcy will grant you an automatic stay. It allows you stay in your home and forces your lenders to immediately stop collection attempts on your debt.  While the bankruptcy is in process, you have some time to strategize with your family and attorney to figure out your plans to move forward.

Filing Bankruptcy Can Help You Survive Overwhelming Debts

If filed properly and followed through, bankruptcy will allow you to reduce or eliminate your debt completely. After the bankruptcy term is completed, the court will discharge your debts.  You will no longer be obligated to pay your lender, and your lender cannot contact you regarding that debt. However, there are some debts that bankruptcy does not wipe out, such as child support, student loans, tax debts, and secured debts.  Please consult us about your different debts before attempting to file bankruptcy.  If you are facing foreclosure and can afford bankruptcy payments, filing bankruptcy will protect you from debt collectors and postpone the auction date on your house. Many people fear bankruptcy because they believe they will lose everything in the process, but this is not true. When you file Chapter 13, you do not have to give up any property or possessions.  Chapter 13 Bankruptcy will force your lender to accept a repayment plan that works for you.

Liquidation vs Reorganization

Chapter 7 Bankruptcy is often called a liquidation because your assets are examined by the trustee to see if there is anything that can be liquidated (sold) to pay off your lenders. Certain types of property are considered exempt, and you will be able to keep these. This includes things such as non-luxury motor vehicles, household appliances, pensions, tools of trade, reasonable furnishing, and necessary clothing.  To qualify for Chapter 7 Bankruptcy, you must pass the Means Test, and your income and expenses must be at certain levels.  We can figure this out for you, please contact us for a consultation.  It is important to know that Chapter 7 Bankruptcy only forgives your debts and postpones the sale of your home, it will not lift the foreclosure. Your lender can request the court to lift the automatic stay and continue with the foreclosure process, but they also may give you a chance to prove that you can get back on track with payments.  If used properly, Chapter 7 Bankruptcy will discharge debts that were weighing down your financials and gives a humble restart.

Basic Timeline for Chapter 7 Bankruptcy

Also known as reorganization, Chapter 13 Bankruptcy allows you to structure a repayment plan to pay off the past due amount over time, usually about three to five years depending on your income. You won’t have to surrender any of your assets, including your house. The plan is meant to be affordable for you. You will have to financially prove that you can afford your current mortgage payment, living expenses, and the bankruptcy repayment plan. You will also have to pay any bankruptcy filing fees, trustee fees, attorney fees, secured debts (missed car payments), and priority debts (child support, alimony, tax debts, etc.). However, depending on your disposable income and debt amount, you may not have to pay your unsecured debts (credit cards, medical bills).  In the context of foreclosure, Chapter 13 Bankruptcy is more effective than Chapter 7 Bankruptcy because your lender cannot request the court to lift your automatic stay. It is active as soon as your case is filed, and remains active throughout the entire length of your repayment period, given that you make the required payments. If you encounter a hardship during the repayment plan and are rendered uncapable of paying, let your bankruptcy trustee know.  Your plan may be modified, or the court may still discharge your debts due to the hardship.

Basic Timeline for Chapter 13 Bankruptcy

Also known as reorganization, Chapter 13 Bankruptcy allows you to structure a repayment plan to pay off the past due amount over time, usually about three to five years depending on your income. You won’t have to surrender any of your assets, including your house. The plan is meant to be affordable for you. You will have to financially prove that you can afford your current mortgage payment, living expenses, and the bankruptcy repayment plan. You will also have to pay any bankruptcy filing fees, trustee fees, attorney fees, secured debts (missed car payments), and priority debts (child support, alimony, tax debts, etc.). However, depending on your disposable income and debt amount, you may not have to pay your unsecured debts (credit cards, medical bills).  In the context of foreclosure, Chapter 13 Bankruptcy is more effective than Chapter 7 Bankruptcy because your lender cannot request the court to lift your automatic stay. It is active as soon as your case is filed, and remains active throughout the entire length of your repayment period, given that you make the required payments. If you encounter a hardship during the repayment plan and are rendered uncapable of paying, let your bankruptcy trustee know.  Your plan may be modified, or the court may still discharge your debts due to the hardship.

Having a foreclosure on your record will heavily damage your credit, but filing a bankruptcy will also damage your credit.  Filing bankruptcy should be taken seriously and only considered as a last line of defense. However, it is quicker to rebuild your credit score from a bankruptcy than from a foreclosure because you are left debt-free. Your credit score is calculated relative to the people in your category, which includes those who have declared bankruptcy.  Your score can decrease 150-200 points. Chapter 13 Bankruptcy stays on your report for up to seven years, and Chapter 7 Bankruptcy stays on your report for up to ten years.

Although your credit will take a hard hit at first, the bankruptcy will become less important over time.  It is crucial for you to start re-building good credit by practicing good financial habits. It may be better for your credit to be out of the situation where you had multiple missed payments on multiple accounts, as those will continually weigh down your score. 

Just know that it is not the end of the world, but more like the beginning of a new one. You can be eligible for credit cards within a few months, and new loans within a few years. Bankruptcy is a business decision with your future in mind, and we know that it can be a difficult decision to make. Let us help you with a free consultation to ensure you will be making the best informed decision for your situation.

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