Chapter 7 Bankruptcy Can Stop A Home Foreclosure – Here Is How
Chapter 7 bankruptcy can stop a foreclosure for a short time but its ability to do it permanently is limited. Let’s discuss how Chapter 7 treats a mortgage, why this is not the best way to save your home.
What Is Chapter 7 And How It Does Affect Your Mortgage?
It helps to wipe out all debts, of course, but there are some misconceptions. In return, you have to give up some of your property and here is where the bankruptcy attorney in Edmond, OK, can guide you on the best way to do this. At the end of the case, the court will enter a discharge that will eliminate your debts forever.
Chapter 7 Wipes Out Personal Liability But Not Liens
It wipes out the amount you owe on your mortgage note personally but has no effect on your mortgage lien. This means if you are behind in mortgage payments, lenders can foreclose once you have your discharge entered. This is also applicable for liens.
Chapter 7 Rejects A Mortgage Deficiency
After receiving your bankruptcy discharge, you are no longer liable for the mortgage and you will not owe money for a deficiency balance after foreclosure. If you have more loans than the value of your home, you will be in deficiency. Chapter 7 is good if you want to avoid liability for a deficiency judgment but to stop a foreclosure this is not an ideal option.
Why Chapter 7 Is Not An Ideal Option To Save Your Home?
This policy does not help to meet delinquent mortgage payments through the bankruptcy case. Moreover, the court cannot compel the mortgage company to organize any repayment plan with you.
A court can completely outcast a mortgage lien when the property value is not higher than the foreclosure sale to repay money towards the lien. This is known as lien stripping. This is available with Chapter 13 bankruptcy cases but not with Chapter 7.
A Temporary Stop To Foreclosure
This is the biggest benefit of Chapter 7 bankruptcy. When it is filed, the property or home gets an automatic stay against foreclosure. It stops creditors from collecting your home from you. A court can punish creditors if they try to collect your home once you have already filed for bankruptcy. This is a temporary cease and if your home is scheduled for a foreclosure sale, it will also stop that.
There are a lot more details on Chapter 7 bankruptcy. Only a bankruptcy attorney in Edmond, OK, can inform you about it. If you are curious to know more about this legal policy or a comparison between Chapter 13 and Chapter 7, contact Chris Mudd & Associates.