Bankruptcy can help save homes from foreclosure in a few ways. Under the present laws, filing either a Chapter 7 or a Chapter 13 bankruptcy will stop a foreclosure, but you will have to cure the mortgage somehow.
Chapter 7 is a temporary stop to the foreclosure, but might give you a short time to sell or refinance the property. Chapter 13 will give you up to five years to catch up the missed payments, or a longer period to sell or refinance. Exactly how this would work must be looked at on a case by case basis, and you should speak to an experienced bankruptcy lawyer in your town to determine what you can do.
Most people who want to save their home will file Chapter 13 bankruptcy to get time to cure the mortgage arrears. They normally have to be in a position to make the ongoing (regular) payments in addition to whatever Chapter 13 plan payment is required.
Right now, if someone has residential mortgage payments that they can’t afford to pay, even Chapter 13 bankruptcy can’t help modify the payments. Under current bankruptcy law, you can’t modify a residential mortgage in bankruptcy, except to provide for the cure of the past due payments.
That is expected to change soon, since Congress is looking at changing bankruptcy law to allow mortgage modification which would allow bankruptcy judges to oversee modification of residential home mortgages. If passed, the law is expected to allow mortgage modification by changing interest rates, payments, times and lowering the balance due under the right conditions.
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