Foreclosure is one of the worst possible outcomes after investing in real estate. People who have spent years making payments toward a mortgage could lose their homes because of temporary financial hardship.
Those concerned about their financial circumstances sometimes decide to file for personal bankruptcy. Others question whether bankruptcy is truly a viable solution. Struggling homeowners may worry that they cannot qualify to refinance a mortgage after filing for bankruptcy.
While a bankruptcy filing does decrease an individual’s credit score and temporarily affects their ability to secure new lines of credit, a successful personal bankruptcy filing can have a net positive impact on an individual’s overall credit. In some cases, bankruptcy could help prevent foreclosure.
Automatic stays prevent imminent foreclosure
Some people have already missed four or more payments. They may be on the verge of formal foreclosure proceedings. Filing for bankruptcy before foreclosure hearings take place can delay that process. Generally speaking, creditors, including mortgage lenders, have to delay collection activity after the courts grant an automatic stay. The courts may dismiss pending creditor lawsuits. The temporary cessation of collection efforts can help people analyze their situations and develop a path forward.
Lenders may cooperate during a bankruptcy
Creditors, including mortgage lenders, have an incentive to cooperate during bankruptcy proceedings. Those filing for bankruptcy cannot discharge a mortgage and retain the home purchased with that mortgage. They have to reaffirm the mortgage in most cases. Before doing so, they might be able to negotiate certain concessions with a lender. They may be able to reduce their monthly payments, possibly by extending how long they agree to make payments. They can also eliminate the need to make multiple missed mortgage payments at once in some cases.
Bankruptcy eliminates certain debts
As previously mentioned, bankruptcy filers typically cannot retain a home with a mortgage attached without reaffirming or renegotiating the loan. The discharge the courts provide can eliminate other sources of financial pressure. By discharging credit card balances and medical debts, people struggling to make their mortgage payments may have an easier time balancing their budgets.
The financial issues that pushed someone to the edge of foreclosure can help them determine if personal bankruptcy might be an option. A successful bankruptcy filing can help people avoid foreclosure and protect their most valuable resources.
Those on the verge of bankruptcy generally need help making informed choices. Contact the team at the Law Office of Russell Gary Small, P.C., by clicking here or calling 203-594-6655 to get the support and insight necessary to protect a home during personal bankruptcy.