The Basics on Bankruptcy
Bankruptcy is an official legal process that is designed to protect an individual or company from their creditors. This protection may extend to the filer's home. Because it is a legal process, there are very specific regulations about the circumstances under which someone can file as well as what happens as a result of the proceedings. There is a special class of courts in the United States devoted to dealing with bankruptcies. In most cases, these courts develop plans to resolve as many of the filer's debts as possible. Often, any assets the filer has are divided among the creditors in order to compensate them. There are two common types of bankruptcies for individuals: chapter seven and chapter thirteen.
Foreclosure Information
Foreclosures can seem similar to bankruptcies in that they involve legally seizing a debtor's property in order to repay a debt. Most foreclosures begin when borrowers fail to meet the obligations of their mortgages. Then lenders generally reclaim and sell the mortgaged properties at auction to regain the money the borrowers owe them on the properties. In some states, foreclosures must go through the courts. Foreclosures result in the loss of the borrowers' homes and also have serious negative effects on the borrowers' credit reports.
How Bankruptcies Can Protect Homes
Laws governing bankruptcies can vary across the country, but in general, any pending proceedings for foreclosures must cease once the borrower files for bankruptcy. In many cases, however, this protection is temporary. Chapter thirteen is the type to file if your goal is to save your home. These proceedings will discount your debt and create a payment plan intended to allow you to pay your creditors over time. Ideally, you will be able to catch up on the mortgage payments you missed and regain your good standing on the loan. However, if you do not fully follow the directives of the court's payment plan (that is, if you miss a payment), it is possible for your lender to begin foreclosing again.
Bankruptcy's Negative Consequences
Bankruptcies have a significant and lasting negative impact on credit scores. Perhaps the biggest drawback to using this option to avoid foreclosure, however, is the danger that you may still lose your home. As with any other option, it is wise to consider the entirety of your situation carefully before you proceed. The best course when you are in default is to explore all the options available to save your home from foreclosure before filing for bankruptcy.