Foreclosure & Chapter 7 Bankruptcy

If you are current on your mortgage (or can get current in a hurry) but have no room in your budget to continue making your payments, filing for Chapter 7 bankruptcy can make your mortgage more affordable by reducing your total debt load—and so help to prevent foreclosure in the long run. Chapter 7 bankruptcy is quick (it takes about three months). It’s also inexpensive if you forgo hiring an attorney and represent yourself, which many people do. Chapter 7 bankruptcy typically will wipe out your unsecured debt—for example, credit card debt, personal loans, medical debts, and most money judgments. You will then be able to use the income you were using to pay down those unsecured debts to pay off your mortgage.

Even if you have decided to leave your house, bankruptcy can be of great assistance in keeping you in your home for a few extra months free of charge, as well as giving you a fresh start by wiping out liabilities arising from your mortgages or the foreclosure itself.

Despite these benefits, Chapter 7 bankruptcy may not be appropriate for you. For example, you may have more equity in your house than you can protect, or exempt, in your bankruptcy, which would trigger an involuntary sale of your home. Also, unlike Chapter 13 bankruptcy, Chapter 7 bankruptcy doesn't give you much of an opportunity to legally challenge the validity of your mortgage or foreclosure proceedings.