Sacramento area homeowners facing foreclosure may be able to save their homes by filing Chapter 7 or Chapter 13 bankruptcy. CNNMONEY.com posted an article by Les Christies today regarding the impact filing for bankruptcy may have on an individual seeking to save his or her home from foreclosure.
There is no question that filing for bankruptcy can stop foreclosure proceedings and eliminate harassing phone calls from debt collectors temporarily. The question, however, posed by many of my clients is “Can bankruptcy save my house?” My answer to this question is “it depends.” The biggest factor that determines whether a debtor can stay in his or her house is his or her ability to continue making payments on the mortgage.
Chapter 7 bankruptcy eliminates all unsecured debt and eliminates any personal liability on those debts. However, when an individual has his/her debt secured by something like a house or a car the lender has the right to foreclose on that property if the borrower fails to make payments. Thus, if one of my clients does not have enough income to continue making the payments on his or her house a bankruptcy will not save the house from foreclosure. In this scenario, all the bankruptcy will provide the debtor is extra time until the house is ultimately sold by the lender.
On the other hand, if a person is in the position to free up additional monies by eliminating his unsecured debt, which allow the debtor to make the mortgage payments, then the bankruptcy will in fact save the debtor from foreclosure. For example, let’s say a person has $1500 of income every month and has a $900 mortgage payment along with $400 in monthly expenses in addition to $30,000 in unsecured debt that has minimum payments of $300 every month. In this case the debtor’s liabilities exceed his income by $100 every month. This is when people caught in this situation begin to fall behind or their credit card and mortgage payments. The debtor who finds himself with this problem has several options to remedy the situation; mainly, he or she can either increase his income or decrease his monthly expenses to break even.
Unfortunately, many people can’t make ends meet due to multiple factors and this is where the bankruptcy comes in to play. If the debtor in the above described situation were to file for Chapter 7 he would eliminate the $300 minimum payments in the unsecured debt every month upon receiving his or her discharge. This would therefore place the debtor in a situation where he has $200 extra a month and can be in a position to pay his mortgage and continue to make the monthly expenses payments. Thus, one of the solutions to the debtor’s financial problems, in this situation, is the bankruptcy.
Of course, the decision to file bankruptcy is an extremely important decision and has multiple consequences that must be taken into consideration before you determine that Chapter 7 or Chapter 13 is the best option for you. This is why I suggest that you contact a Sacramento Bankruptcy Attorney who is familiar with these concepts and possible impact that the filing may have on your independent situation.