Successful professionals, business owners and even those who come from wealthy families sometimes end up struggling financially. All it takes is a change in the local economy, a shift in a particular industry or a job loss for a previously financially comfortable adult to find themselves struggling to pay their bills.
Those with higher incomes often enjoy a higher standard of living, complete with higher personal debt levels. They may acquire higher-value homes that have relatively expensive mortgages attached. They may then struggle to make monthly mortgage payments if they cannot find a new source of income or a way to alleviate financial pressure after their circumstances change.
Can a bankruptcy filing help someone worried about foreclosure to protect their primary residence?
Bankruptcy can delay foreclosure
In most scenarios involving an owner-occupied residential property, foreclosure becomes a possibility after four missed mortgage payments. Those who wait until the last minute to take legal action may actually receive notice from their lender indicating an intent to foreclose.
Others may simply recognize that they are on the cusp of foreclosure and may take action to prevent the lender from initiating foreclosure proceedings. A bankruptcy filing can halt a foreclosure in progress at least temporarily. The courts offer an automatic stay that requires creditors to cease all pending collection activity, including court-based collection efforts like foreclosure.
Homeowners can rework their debts
Those with high-value assets and a lucrative career may pursue a Chapter 13 bankruptcy to protect their property from liquidation. Chapter 13 bankruptcies involve structured repayment plans.
Chapter 13 filings also frequently include debt negotiations with creditors. Mortgage lenders may be more likely to modify an existing mortgage during a Chapter 13 bankruptcy. Borrowers may be able to lower their monthly payments, move missed payments to the end of the mortgage repayment period or lock in a fixed rate on a mortgage that previously had a variable rate.
Those changes might make it easier for the homeowner to protect their interest in the house as they start rebuilding financially. The final discharge of their eligible debts can also be beneficial for the homeowner. They may be able to rework their budget and make their mortgage payments more comfortably.
Pursuing a Chapter 13 bankruptcy can potentially help a homeowner who worries about the possibility of foreclosure. A successful bankruptcy filing can preserve key assets and eliminate certain debts to help take the pressure off of a struggling filer.
