When you fall behind on your mortgage, you might start to plan for the unthinkable – that you will lose your home to foreclosure. While this is a possibility, there are also ways to prevent this by filing for bankruptcy.


An experienced bankruptcy attorney can help you determine if filing for Chapter 7 or Chapter 13 bankruptcy is the right option for you, and will know what steps to take to try to avoid foreclosure.


What Is Foreclosure?

First, it’s important to understand what foreclosure is and what it means for your home. If you fall behind in your mortgage payments, your lender may sell off your property at an auction and use the money from the sale towards your mortgage balance. Your contract with your lender will specify when your lender is allowed to pursue foreclosure. This can give you time to try to work out an arrangement with your lender to get caught up on the missed payments.


How Chapter 13 Bankruptcy Can Help You Avoid Foreclosure

There are typically two types of bankruptcy individuals can pursue, Chapter 7 and Chapter 13. When you file for either of these, an automatic stay will be put in place that will cause creditors to stop collection efforts – and postpone your foreclosure. 


When you file for Chapter 13 bankruptcy, you may be allowed to keep your home and avoid foreclosure after your bankruptcy is final. Under Chapter 13, you will submit a court-approved repayment plan that allows you to pay off your debts under a restructured plan that can reduce your monthly bills. These take 3 to 5 years to complete. 


This payment plan allows you to pay off the arrearage throughout the bankruptcy proceedings. As long as you make the payments as scheduled through your plan, you should be able to avoid foreclosure. 


If you file for Chapter 7 bankruptcy, the foreclosure may still be allowed to go through after the bankruptcy is final and the automatic stay is lifted. In Chapter 7, you do not repay your debt, and instead, your assets may be liquidated to repay the money you owe your lenders. 


Lenders may look more favorably on Chapter 13, as it requires you to pay back your debts under a restructured plan. 


Bankruptcy and Second and Third Mortgages

Do you have a second or third mortgage out on your house? You might be able to get rid of them during Chapter 13 bankruptcy. How this happens might seem a little complicated – but it can benefit you in the long run.


Essentially, if you do not have equity in your home (if its value has dropped) – you cannot secure the second and third mortgages you previously took out. This makes them unsecured debt, which can be discharged during Chapter 13 bankruptcy. That means you don’t have to pay them back. However, if your home value has increased and you have equity in your home, then this approach may not be used.


If you have multiple mortgages out on your house, then it’s important to work with your bankruptcy attorney to determine the best course of action. 


Contact an Attorney

Do you need an Oklahoma City bankruptcy attorney to help you reorganize your finances and potentially avoid foreclosure on your home? The right attorney can guide you through bankruptcy proceedings and help you take the correct steps to keep your family’s home.

It’s crucial to hire an experienced attorney to help you through the process, determine what you can and cannot do, and get the money you are owed. Don’t let debt ruin your life. Call (405) 529-9377 for a free case review.

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