If you have fallen behind on your mortgage payment or car note and are struggling to catch up, bankruptcy might be a viable solution for your circumstances. You might find yourself wondering if it can stop lenders from foreclosing on your home or repossessing your vehicle. Though it is often a path of last resort for many people, it can provide much relief and an opportunity for you to bring those accounts current.
Before you file for bankruptcy, you need to understand the different chapters and how they differ in their foreclosure and repossession protection benefits. Here are the main differences between Chapter 7 and Chapter 13 foreclosure and repossession protections.
Chapter 7 can delay foreclosure and repossession
Filing for Chapter 7 means you believe you cannot afford to repay your debts or catch up on delinquent payments within a reasonable amount of time. Generally, the courts look at the petitioner’s income, financial obligations and ability to regain his or her financial footing within three to five years.
If your income falls within the allowable limits for Chapter 7, the courts will issue a stay that prevents creditors from pursuing further legal collection activities. This stay remains in effect until the bankruptcy is over. If you want to keep your vehicle or home, you will need to work out an arrangement with the lenders to bring the accounts current before the courts lift the stay. Chapter 7 can only delay foreclosure and repossession, not prevent them entirely.
Chapter 13 can prevent foreclosure and repossession
Chapter 13 bankruptcy may seem less desirable because it requires debtors to repay what they owe. However, if you want to keep your home or car, it offers more flexibility than Chapter 7. Chapter 13 requires a three- to five-year repayment plan. At the end of the repayment period, remaining unsecured debts are discharged.
This plan can result in lower payments and interest rates, which can help you to catch up on your debts and keep lenders from repossessing your house and cars. Chapter 13 offers you significantly more time to get your finances in order and get current on your debts.