How bankruptcy can help those who are worried about foreclosure

On Behalf of | Apr 12, 2023 | Bankruptcy |

People frequently commit a significant portion of their income every month toward their mortgages. Although a lot of that money goes toward interest, especially during the first few years, a portion of each payment sent to a lender will add to a family’s equity in their property.

Eventually, a homeowner will fully repay the mortgage and all of the interest that accrued over the life of the loan, at which point they will no longer be subject to a lien on their title. Unfortunately, as long as there’s still a balance due on a mortgage, there is a possibility for a homeowner to lose what they have invested in the home via monthly payments, a down payment and improvements to the home.

Those who have fallen behind on payments are often desperate to find a solution that will protect their interest in their property. Personal bankruptcy can help those who worry that foreclosure might be on the horizon due to recent financial challenges.

How bankruptcy can help

The most immediate way that bankruptcy helps someone who has fallen behind on their mortgage is through the automatic stay. The courts send out notice of the bankruptcy filing, which will likely terminate collection activity, including pending foreclosure proceedings in civil court.

Another way bankruptcy helps is by freeing up more of someone’s income to dedicate toward those monthly mortgage payments. If they don’t have to worry about making payments each month on their credit card debt, for example, then they may have an easier time catching up on those missed payments. Additionally, especially if someone files for Chapter 13 bankruptcy, they may be in a favorable position to renegotiate certain aspects of their mortgage with their lender.

Changing the repayment period for the loan or moving the past-due payments to the end of the repayment period are both possible modifications that could help someone who has fallen behind on mortgage payments.

Overcoming debt may require drastic steps

Those who have reached a point where they struggle to make even minimum monthly payments on their accounts or cover their mortgage may need to be honest with themselves about the need to take drastic steps to correct their financial circumstances.

Filing for personal bankruptcy can help individuals who are worried about protecting their most valuable property or the possibility of wage garnishment avoid worsening financial circumstances caused by unmanageable debt. Understanding more about personal bankruptcy can help those who are struggling with the risk of possible foreclosure and overwhelming debt choose the best solution for their unique circumstances with the assistance of a legal professional.