How bankruptcy can help Mainers facing foreclosure

If you are facing foreclosure, both types of bankruptcy can potentially help.

If you have fallen behind on your mortgage, you may face the much-dreaded consequence that is foreclosure. Many in this situation have heard that filing bankruptcy would allow them to keep their home, but are unsure of how the process works. Although both types of bankruptcy can technically help you stop foreclosure proceedings, one type may be better than the other in certain situations.

How Chapter 7 can help

You may have heard that your property is sold to pay your debts during Chapter 7 bankruptcy and thus be reluctant to seek its protection. Although this is partially true, most of your important assets, such as home equity, your car and personal items are at least partially exempt by Maine law from being sold. As a result, most filers of this type of bankruptcy are able to keep their homes.

If you are facing an imminent foreclosure sale, filing Chapter 7 begins the relief. Upon filing bankruptcy, the automatic stay immediately stops all of your creditors from attempting to collect debts. As a result, all foreclosure proceedings are immediately halted.

Unfortunately, as far as foreclosures are concerned, this relief is only temporary, as your lender may recommence the foreclosure with the court's permission after a certain period, if the arrears on the mortgage are not paid off. As a result, Chapter 7 is ideal for those that are having trouble keeping up with their mortgage because of high amounts of credit card, medical and unsecured debt. Since these types of debts are eliminated during Chapter 7, many filers find it easier to become current on their mortgages.

Chapter 13 foreclosure relief

Chapter 13 takes a different approach to debt relief than Chapter 7. Instead of an asset sale, this type of bankruptcy involves the formation of a payment plan, where your debts are repaid in full or partially over a three to five-year period. When you file Chapter 13, the automatic stay still immediately protects you from foreclosure, but unlike Chapter 7, the protection typically lasts throughout the bankruptcy.

During Chapter 13, the arrearage on your mortgage becomes part of the payment plan. Each month, you make a payment towards your arrearage (as well as your other debt). The payments are kept affordable, as they are based on your disposable income. As long as you continue making payments each month, the bankruptcy laws prohibit your lender from recommencing foreclosure proceedings. Once the repayment period has been completed, you emerge from bankruptcy current on your mortgage debt (and completely free of most other debt).

Due to the nature of Chapter 13 and its requirement for regular monthly payments, it is typically a better fit for those that have a steady income, but have fallen behind on their mortgages.

The right approach to saving your house from foreclosure depends on many factors that are unique to you. Because of this, it is important to consult with an experienced bankruptcy attorney before proceeding. An attorney can advise you further on how each type of bankruptcy would affect your day-to-day life and recommend one that would be the least intrusive.

Keywords: foreclosures, bankruptcy