Understanding Foreclosure Defense

When a person is facing foreclosure, most attorneys will immediately recommend a Chapter 13. This is because a Chapter 13 has provisions specifically designed to address foreclosure situations. A Chapter 13 will not only stop a foreclosure sale, but will allow a home owner to pay back arrears as part of the Chapter 13 plan and possibly avoid future payments on a second mortgage.

Unfortunately, a Chapter 13 is not ideal for all distressed homeowners. In order for a Chapter 13 to be able to permanently stop a foreclosure sale, the borrower must be able to put forth a credible plan to cure the arrears over the three or five year commitment period, while also certifying to the court that they can make their regular mortgage payments going forward. Many struggling homeowners either cannot afford to make their current payment or are so far behind that paying a large sum every month towards the arrears is simply not feasible.

For those individuals, pursing a Chapter 7 might be a viable alterative. A Chapter 7 will usually postpone a sale for at least 30-60 days. It will also discharge a borrower from his or her personal liability on the mortgage, meaning that, while the bank can still foreclose on the property, the borrower is no longer responsible for any balance of the mortgage that is left outstanding after the sale. For those people who are struggling with their mortgage, but not facing foreclosure, a Chapter 7 can eliminate your credit card debt, freeing up funds to devote towards future mortgage payments.

Chapter 7 also works well in conjunction with a loan modification. While a borrower can pursue a loan modification while doing a Chapter 13, the process can be much more cumbersome and may result in the savings being placed into the Chapter 13 plan rather than the homeowner's pockets. Obtaining a loan modification after a Chapter 7 discharge avoids these pitfalls. Thus, for homeowners who are in dire financial straits, a Chapter 7 can be more beneficial than a Chapter 13 in many instances.