Preventing Foreclosure: Is Chapter 7 Bankruptcy an Option?

Thus far in the Preventing Foreclosure series, you’ve received an introductory look at how to hold on to your home; learned the best ways to work with your mortgage lender; and were provided with a more permanent plan to keep your house through Chapter 13 bankruptcy.

But Chapter 13 isn’t the only option for average Americans struggling with mortgage debt and facing foreclosure. With Part IV of this six-part series, it’s time to get a better understanding of how filing for Chapter 7 bankruptcy can also help protect yourself and prepare you for a stronger financial future.

Part IV – Chapter 7 Bankruptcy

Stop Foreclosure
As is the case with Chapter 13 bankruptcy, the Bankruptcy Code’s automatic stay is a powerful court order that kicks in as soon as you file your bankruptcy papers. In addition to pausing any foreclosure proceedings, the automatic stay will put a stop to all forms of collection by creditors, including, repossessions, garnishment, lawsuits, and harassing phone calls. If you've made the decision that you simply can't afford your mortgage payment, consider a pre-foreclosure Chapter 7. Your unsecured debt will get wiped out, and the bankruptcy will stall the foreclosure, giving you some time to save up some money for your next step.

Protect All of Your Property
Chapter 7 bankruptcy is, in some ways, win-win situation for homeowners facing foreclosure. Chapter 7 dispenses all of your unsecured debts, including credit cards and health care bills. While creditors, in turn, are entitled to proceeds from a sale of some of your valuable assets, in almost every personal Chapter 7 bankruptcy case there is no property sales of any kind. Thanks to Chapter 7 bankruptcy exemptions, most or all of your property is probably fully protected from sale or repossession, including your home and possibly your cars. With the recent passage of new homestead exemption legislation in North Carolina, chances are, all of your property is protected.
Keep in mind, if you own more than one home, vacation properties or a more expensive home (with a value above your state’s maximum amount) you may want to protect these properties by filing Chapter 13 bankruptcy instead—a better option to protect a home for families with more regular or disposable income.

Dispense With Other Homeowner Debts
Chapter 7 bankruptcy may not only cancel all mortgage debt, but also dispenses with additional mortgages and home equity loans. In addition to removing mortgage debt, new tax laws mean you may no longer face tax liability for defaulting on a mortgage or home-improvement loan.

Avoid Dead-End Solutions and Foreclosure Scams
Amid an uncertain economic period full of rising unemployment, high debt loads, plunging housing values and wobbly stock prices, Chapter 7 bankruptcy provides safe and legal solutions to your foreclosure fears and avoids today’s endless array of rescue scams preying on the vulnerability of desperate homeowners.

Sometimes its Better to Just Walk Away
As 2009 comes to an end, more than 3 million foreclosures are predicted, as homeowners are increasingly incapable of paying the mortgage during this brutal recession. Filing for Chapter 7 bankruptcy pending foreclosure can provide a much-needed stopping point for those drowning in homeowner debt—as well as debts related to credit cards, medical bills, and more—and a comparable starting point for a family’s more viable financial future. The lending industry has taken advantage of consumers, driving home prices to unrealistic heights. With home prices collapsing, and many homeowners owing more than their home is worth, it makes better financial sense to walk away. Chapter 7 allows you to do so with a clean slate.

To get the big picture on how Chapter 7 works and how the laws in North Carolina can help you, speak with a professional bankruptcy lawyer at the The Law Offices of John T. Orcutt.