Overwhelming debt can make it difficult to live a normal life that you can enjoy. You might take on multiple jobs to try to claw your way out of debt, and you may make big sacrifices to save as much money as possible. But if you’re like millions of other Americans, then your efforts haven’t been as successful as you’d hoped. In fact, a lot of people who do everything they can to climb free of their financial obligations end up falling deeper into debt. And when this happens, you could wind up facing serious consequences, such as home foreclosure.
Since you’ve found yourself to this post, though, you’re probably wondering what the bankruptcy process can do, if anything, to help you stave off foreclosure. Fortunately, the bankruptcy process does provide some protection that may allow you to stabilize yourself and figure out your next steps. Let’s look at them here.
Filing for personal bankruptcy could help you keep your home. Here are the main protections that’ll be afforded to you in that regard once you initiate the process:
- An automatic stay: Once you file your bankruptcy petition, the court will issue an automatic stay. This halts all debt collection, including those related to your house. As a result, the bank will be prohibited from advancing foreclosure proceedings. Even if the foreclosure process has already been initiated, the automatic stay will prevent any foreclosure sale from being finalized. While this stay is temporary, it can buy you time to figure out your next steps and find arrangements to ensure your home isn’t foreclosed upon.
- A chance to reorganize debt: If you pursue a Chapter 13 bankruptcy petition, then your debts will be reorganized, and you’ll be put on a payment plan. Your mortgage debt can be made part of that plan. So long as you adhere to the terms of the plan and make good on your payments, you should be able to get caught up on your debt and keep your home.
- An opportunity to discharge unsecure debt: If you choose to seek a Chapter 7 bankruptcy, oftentimes referred to as a liquidation bankruptcy, then you may be able to eliminate many of your unsecured debt obligations, such as credit card debt. While this type of filing doesn’t directly affect your home, it can free up funds to allow you to make good on your mortgage obligation.
- The ability to negotiate: If your mortgage lender sees that you’re pursuing bankruptcy to get caught up on your mortgage debt, then they might be more willing to negotiate with you given that you’ve been proactive in trying to pay your debt and remain in your home. Your bankruptcy filing, then, may be the catalyst needed to seek modification of your loan terms, which could give you a little bit more breathing room.
- The ability to remove liens: If a lien has been placed on your home, whether that’s from a creditor or your HOA, you may be able to have it removed from the home during the bankruptcy process, thereby protecting your interest in the residence and reducing the risk of someone moving to foreclose on it.
Use the bankruptcy process to your advantage
There are many benefits to pursuing personal bankruptcy. To maximize its advantages, though, you have to understand what it takes to successfully navigate your petition. That can be stressful to think about, especially as you’re dealing with the day-to-day stressors in your life, but don’t give up or give in. Take the action needed to educate yourself and surround yourself with any guidance that may be needed. By doing so, you’ll hopefully come out on the other side with the fresh financial start that you need and deserve.