There is a myth floating around that filing bankruptcy will stop a home foreclosure. While it may delay the process, it does not stop it entirely. The only way to stop foreclosure is to pay off your home loan. The ways to do that is to sell the home, refinance or apply for a loan modification.
Don't run to an attorney right away
Many homeowners may dash to an attorney in the hopes of stopping a foreclosure by filing bankruptcy. Some attorneys may put home owners into bankruptcy without explaining to them all the options and consequences. For many, bankruptcy is a good option, but it is not for everyone.
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A good bankruptcy attorney will meet with a client and explain to them all of the ramifications of bankruptcy. Together, they should devise a plan to save the home from foreclosure. Most homeowners should apply for a loan modification first, and then consider bankruptcy after.
Loan Modification
The reason for applying for a modification before bankruptcy is because bankruptcy may limit the options of a home owner. There are many loan modifications available and when one files for bankruptcy, these modifications are very limited. It wasn't until a few months ago that homeowners were able to apply for loan modifications after bankruptcy. The government has responded to the people who are in need of financial assistance.
Last Resort
Bankruptcy should always be a last resort and should be done when all other methods have been exhausted. Chapter 7 does clear all debts, but it is very difficult to become eligible and receive a discharge of your debts through Chapter 7 bankruptcy.
While Chapter 13 bankruptcy is an option for some as it is more of a payment plan, many homeowners find that they cannot complete the bankruptcy repayment plan and end up back in foreclosure. While it is possible to participate in a loan modification after bankruptcy, your options will be limited. If you feel as though you can pull through, then by all means try to work out a loan modification before you file for bankruptcy. If you wait too long, you may find that your home goes into foreclosure and the only way to get it back is to pay everything you owe including late fees. You may wish to seek out the services of a qualified credit counselor before you decide to take bankruptcy as your only alternative.
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