Your home is your most valuable asset in part because of the price tag it carries and also because the ownership of other property is usually contingent on having space to store those assets. You may have saved for years to put together a down payment on your home, and you likely spend a significant portion of your income every month on mortgage payments. You may commit even more to your house in costs in the form of renovations for the property.
Until you make your very last mortgage payment, the risk is there for you to miss payments and potentially endanger your future ownership rights. Foreclosure is the legal process through which a lender reclaims a home because of missed payments.
Filing for personal bankruptcy can benefit those worried about foreclosure in two separate and powerful ways.
1. They can delay collection activity
The day that you go to the courts to file bankruptcy paperwork, you receive an automatic stay. That stay specifically limits collection activity until someone fully resolves their bankruptcy filing. Your automatic stay can prevent a creditor lawsuit that could tie up your resources and make it even harder for you to make your mortgage payments. It could also temporarily delay foreclosure proceedings.
While you go through bankruptcy, you can potentially work with your lender. They will want you to reaffirm your mortgage in most cases. Those who file for Chapter 13 bankruptcy, in particular, may have the option of negotiating with their lender. Mortgage companies may agree to modify existing loans to keep the current owner in possession of the property, as foreclosure can be a very expensive process for the lender.
2. They free up funds for future payments
At the end of the bankruptcy process, the courts will grant a discharge of someone’s unsecured debts. When you no longer need to send hundreds of dollars to your credit card company or pay toward huge medical debts, you may have more than enough money to meet your mortgage obligations and other basic financial requirements.
Although you cannot discharge your mortgage because of the collateral property and will instead need to reaffirm it, the ability to discharge other debts will make it easier for you to remain compliant with your monthly mortgage obligations.
Considering personal bankruptcy when you face foreclosure could be a way for you to protect your most valuable assets and gain control over your household budget.