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Can bankruptcy help save my home?

Bankruptcy can help you save your home from foreclosure in a few different ways, and importantly provide the homeowner with time to determine their next steps. Under the present bankruptcy laws, if you file either a Chapter 7 or a Chapter 13 bankruptcy, it will stop the foreclosure process, but you still need to have to cure the mortgage delinquency somehow. So it is a short term solution that really provides the individual more time to decide on their next steps. It will also usually allow the family to continue to live in the home while the court system reviews their case.

Chapter 7 vs. Chapter 13 bankruptcy

While chapter 7 bankruptcy is just a temporary stop to the foreclosure process, it might give you a short period of time to sell or refinance your property. Chapter 13 bankruptcy is more significant, and will give you up to five years to catch up the missed mortgage payments, or a longer period to sell or refinance your home loan. Exactly how this process works needs to be looked at on a case by case basis and it will depend on your financial situation and terms of your loan. Read how bankruptcy can stop the foreclosure process.

The process is complicated, and there are many different steps to take when filing for a foreclosure. You should always speak to an experienced bankruptcy lawyer in your town or city to determine what you can do. Click here to learn more on the foreclosure process.

Most families who want to save their home will take the Chapter 13 bankruptcy route in order to get the maximum amount of time to cure the mortgage arrears. If they do this, they normally have to be in a position to make the ongoing (regular) monthly payments in addition to whatever Chapter 13 plan payment is required by the courts. So the homeowner needs to have some sort of income or savings in order to do this.

Right now, if a family has residential mortgage payments that they cannot afford to pay, even filing for Chapter 13 bankruptcy can’t help them reduce their payments or modify the terms of the home loan. Under the current bankruptcy law, homeowners can’t modify a residential mortgage in bankruptcy court, except other than to provide for the cure of the past due payments. Read more on when to file bankruptcy.

Foreclosure help during bankruptcy from lawyers

Before going down this path, it is always strongly advisable to speak to an attorney, non-profit credit counselor, or another professional in order to learn more about the process, and to ensure all other alternatives have been explored. In general, filing for either a Chapter 7 or Chapter 13 bankruptcy should be one of the last options. Their are other implications such as significant reductions to your credit score, and it could cause future difficulties in buying or renting a new home or apartment in the future.





All states across the nation have non-profit law firms that can advise struggling homeowners and low income families for free. Read more on how a lawyer can help avert a foreclosure, modify a home loan, or help with a bankruptcy filing. Many of the services offered by legal aid attorneys are free to income qualified homeowners.

However, this entire process and concept of filing bankruptcy is expected to soon change since Congress is strongly considering changing the bankruptcy law to allow mortgage modifications. This change, if it occurs, would then allow bankruptcy court judges to oversee the modification of residential home loans to make the mortgage affordable.

If this regulation is passed, the new bankruptcy law is expected to allow home loan modification by changing monthly payments, interest rates, mortgage length, and also possibly lowering the loan balance due under the right conditions. So while a homeowner would still need to make some form of payment on their loan, filing for bankruptcy would greatly reduce that amount.


By Jon McNamara

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