Filing For Bankruptcy

Bankruptcy is controlled by state and federal laws. You should carefully weigh the consequences of bankruptcy vs. foreclosure. You should talk to a lawyer or approved counselor from the Department of Housing and Urban Development before coming to a decision about whether or not to declare bankruptcy. When bankruptcy is declared the courts issues an "automatic stay", which tells all credit holders to stop collection activities immediately, this includes the lender. This stay remains in place until your case is resolved or until the lender gets permission from the court to "lift the stay" and proceed with the foreclosure. In general there are two types of bankruptcy filings, Chapter 7 and Chapter 13.

Filing Chapter 7 Bankruptcy
A Chapter 7 bankruptcy usually lasts around 3-4 months, during which time the foreclosure proceedings are stopped. However, after the 3-4 months the foreclosure procedure will resume. Note that the lender may get court permission to proceed with the foreclosure during the bankruptcy hearing. Filing under Chapter 7 won't allow you to keep your house. Instead it gives you some time to live and save money that you can ultimately use to find a new place to live. A Chapter 7 bankruptcy will also wipe out any unsecured debt such as credit cards, and medical expenses. It also will not hold you responsible for tax liabilities for loss incurred by the lender at the foreclosure sale.

Filing Chapter 13 Bankruptcy
A Chapter 13 bankruptcy may actually allow you to keep your property, because you make a repayment plan to repay the defaulted amount and the rest of the loan as well. Although Chapter 13 may sound like a good idea, you might not be able to afford the repayment plan approved by the court.

The decision on whether or not to declare bankruptcy is an important one, since bankruptcy stays on your credit report for usually up to 10 years. Be sure to discuss the option of bankruptcy with an experienced bankruptcy lawyer before making a decision.

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