Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often a more popular choice for homeowners trying to delay a foreclosure rather than permanently block it. Chapter 7 is called a liquidation bankruptcy because the court might have to sell some of your property (by property, we are referring to more than just your home, basically your real tangible assets) to satisfy your creditors, but in return you walk away debt free. Certain property are off limits to being sold according to Ohio™s bankruptcy exemption laws, items deemed as necessities of life such as furniture, clothing, personal effects, tools of the trade, cars, books, TV™s, and computers for example.
Chapter 7 Bankruptcy to Delay a Foreclosure
Filing for bankruptcy puts an immediate stop to a foreclosure since the court will issue a stay (an order that delays) that prevents all of your creditors from collecting on any debt that you owe, including mortgage payments. If a homeowner has decided that it is acceptable to give up his home and is looking for temporary relief from being foreclosed on, this is a good delay tactic to employ since it will postpone foreclosure proceedings for two to four months. Once you have come out of bankruptcy, you will also have most if not all of your debts permanently cancelled.
Chapter 7 Bankruptcy to Save Your Home
In order to use a Chapter 7 bankruptcy to save your home from foreclosure you must be current on your mortgage payments and you must make certain that the amount of equity in your home falls within the exemption limits according to Ohio law. If the amount of equity exceeds those limits your home may be sold to satisfy your creditors. Once you file, be aware that you will probably not be able to back out since the interests of your creditors must be protected.
Details to Consider
A Chapter 7 bankruptcy takes about three to four months in court. Foreclosure proceedings will restart after the case is finished unless you can get rid of your debt and arrange to keep your house through the use of the bankruptcy. You can further postpone a foreclosure if you are married and each of you file separately, the second spouse filing after the first one has finished. You can then top it off by filing for a Chapter 13 bankruptcy which would add another six months of relief.
In Ohio, before a foreclosure sale can happen the lender must issue a notice of default 90 days prior. A bankruptcy filing does not disrupt the 90 day window but actually only delays the sale itself. To maximize the delay of a foreclosure sale, a homeowner should file for bankruptcy after a foreclosure sale has been scheduled.
Overview of the Timeline
Before you are allowed to file for a Chapter 7 bankruptcy, you will be required to attend credit counseling. About a month after you file, a creditor™s meeting will be held. Approximately 45 days after the creditor™s meeting, you will be required to attend budget counseling. 60 days after the creditor™s meeting, the court approves the discharge of your debts.
Chapter 13 Bankruptcy
A homeowner filing a Chapter 13 bankruptcy immediately puts a halt on a foreclosure because the court issues a stay, a legal order that restrains creditors, including your mortgage lender, from attempting to collect on any debt you owe. A homeowner™s reprieve from foreclosure will last until the end of the repayment period if the homeowner abides by the required payment plan approved by the court.
Chapter 13 Bankruptcy to Save Your Home
A Chapter 13 bankruptcy will allow a homeowner to keep their home only if they have enough income to make their current mortgage payment plus pay a portion of their arrears monthly. The bankruptcy court will only approve repayment plans that demonstrate an ability to not only make due on the plan payments but that also shows that other necessary monthly expenses can be covered as well, such as transportation, utilities, etc. In addition, some types of debt, like recent back taxes, must be paid off completely through the repayment plan. In order for the court to approve a repayment plan, the bankruptcy filer must have enough monthly income to cover all of these payments.
A typical repayment plan lasts from three to five years. If you are able to commit all of your disposable income to the repayment plan, the court will discharge the remainder of any unsecured debt at the end of that period. Some debts do survive though, such as student loans and child support.
Chapter 13 Bankruptcy to Delay a Foreclosure
Initially, after filing for a Chapter 13 bankruptcy, your foreclosure will be delayed for at least three months while the court reviews your repayment plan proposal. If the court approves your proposed plan then a foreclosure is postponed and possibly avoided if the filer meets the obligations of the repayment plan. In the case that the court does not ultimately approve your Chapter 13 repayment plan, you may be able to convert the bankruptcy to a Chapter 7. This should provide another two to three months of relief from a foreclosure sale.
Benefits of a Chapter 13 Bankruptcy
- Repay missed mortgage payments over three to five years, the typical lifespan of a Chapter 13 bankruptcy repayment plan
- Pay none, or a small portion, of the unsecured debts during the repayment plan period with the expectation of having them completely dismissed at the end of the period
- The ability to contest costs and fees added to any missed payments
- The potential to challenge the legality of any pending or proposed foreclosure in court
- Dismiss any second or third liens on your home that would not have a chance of being paid if your home was sold, due to insufficient property value
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