Filing for bankruptcy is one option for keeping the property and resolving mortgage debts. Many individuals' aversion to the term ""bankruptcy"" prevents them from ever pursuing its advantages. As a matter of fact, avoiding foreclosure is one of the primary motives for declaring bankruptcy.
Maintaining The Home
Filing for Chapter 13 bankruptcy is one of the fastest methods to stop a foreclosure. When a case is lodged with the court, a stay is automatically issued. This order halts all collection efforts and delinquency actions, such as foreclosure, immediately. In addition to halting foreclosure proceedings, an automatic stay prohibits creditors from attempting to resolve or collect the debt.
There are two primary Chapter 13 bankruptcy resolutions for mortgage debt issues. First, following the filing of a Chapter 13 petition, the debtor develops a court-approved repayment plan. This plan includes the repayment of delayed mortgage payments and any associated delinquency fees. Once the court approves the plan, the creditor must adhere to the terms of the plan and cannot foreclose on the property or collect the debt in any other manner. Generally, the debtor is granted an additional three to five years to catch up on delayed payments and retain the home.
Chapter 13 bankruptcy can also eliminate mortgage debts via a procedure known as lien stripping. The legal process of lien stripping removes second mortgages and home equity loans by converting a portion of the debt into an unsecured debt. The portion of unsecured debt is then discharged in bankruptcy, and the debtor is not required to repay it as part of their Chapter 13 repayment plan. When a property's appraised value is less than the amount owed on the first mortgage loan, the lien stripping procedure is typically implemented. The goal is to eliminate the quantity of debt on a home that exceeds its actual value.""
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