During personal bankruptcy proceedings, people can eliminate some of their unsecured debts. They can also potentially protect their property that might be vulnerable due to creditor lawsuits or other collection efforts.
Typically, unsecured debts are eligible for discharge during bankruptcy. However, secured debts, including mortgages, are not eligible for discharge. While filers can’t keep their homes while eliminating their mortgage obligations, they can protect their interest in the property by filing for bankruptcy in a timely fashion.
How can bankruptcy help?
Bankruptcy can benefit people who have fallen behind on their mortgages by providing an automatic stay. All collection efforts, including pending foreclosure proceedings, typically need to stop until the courts resolve the bankruptcy case. Filing after missing multiple payments or after receiving an initial notice of impending foreclosure can give people time to resolve their issues.
They may be able to modify their mortgages. Particularly when people pursue Chapter 13 bankruptcy, lenders may agree to cooperate with filers by changing the terms of their financial obligations. Filers could move their missed payments to the end of the repayment schedule, for example, instead of having an obligation to pay all missed payments at once to bring the loan back into compliance.
Even without modifying the loan, bankruptcy may make it easier for homeowners to preserve their properties. By eliminating other debts, such as medical bills and credit card balances, filers can more easily afford their mortgage payments.
Learning more about the bankruptcy process can help people worried about foreclosure and other aggressive collection efforts. Filers can delay aggressive collection activities, eliminate some of their financial obligations and renegotiate some of their debts. People who have support throughout the bankruptcy process can potentially protect their most valuable resources during times of financial uncertainty.
