Bankruptcy might help in a foreclosure situation, but the homeowners themselves are the only ones that should decide whether to file or not. They need to do do some research on how each type of bankruptcy, Chapter 7 or Chapter 13, would work in their specific situation, as well as consult with an attorney on how to file.
Chapter 7 would allow borrowers to eliminate their other debts, like credit cards, cash advance loans, and personal loans, and use the rest of their monthly income on paying their mortgage. If getting rid of the other personal and cash advance loans would help free up the monthly budget, then filing bankruptcy may be worth considering.
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In a Chapter 7 bankruptcy, also have the option of including their housing debt in order to discharge the mortgage. They would not be able to keep the home, but this would stop foreclosure and the lender would just get the house without going through the entire foreclosure process. The courts would make sure that a deficiency judgment would not be possible, as well.
If homeowners file Chapter 13 bankruptcy to stop foreclosure, they will be put on a legal payment plan established by the courts to pay back the amount they are behind on the mortgage. The plan will last 3-5 years, and by the end of it, the owners will be completely caught up on the loan and any other debts that they are currently are behind on.
But all borrowers need to be careful with a bankruptcy repayment plan. It can be quite expensive, as they are required to pay their normal monthly mortgage payment, plus a portion of the total that they are behind. If their income can not sustain that, then Chapter 13 bankruptcy may not be the right decision.
But without knowing a lot more about any homeowner's circumstances that led to foreclosure, it would be hard for anyone to recommend one type of bankruptcy or another. Borrowers need to find out exactly what they can and can not afford, and possibly talk with a personal bankruptcy lawyer so they have a better idea of what to expect.
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