For many homeowners facing foreclosure, bankruptcy is the final foreclosure defense option. According to Oppenheim Law, under Florida law, homeowners facing foreclosure are allowed to file for bankruptcy and still keep their homes. There are two types of bankruptcy: Chapter 13 bankruptcy and Chapter 7 bankruptcy. For those who want to hold onto their homes, Chapter 13 bankruptcy is the better option.
Chapter 13 Bankruptcy
If you are behind on your mortgage payments and can’t get current, Chapter 13 bankruptcy is your best chance to keep your home. According to Nolo, with a Chapter 13 bankruptcy you are given a length of them, typically five years, to pay off your unpaid mortgage payments. Your unpaid payments are organized into a new payment called an “arrearage.” For this to work, you’ll have to have enough money to pay your current monthly payment and your arrerage. However, if you can make both payments, you will be able to “avoid foreclosure and keep your home.”
Chapter 7 Bankruptcy
However, if your debt burden is so great that you can’t possibly continue to pay a monthly mortgage payment and an arrerage, you may have no choice but to file for Chapter 7 bankruptcy. According to Florida Bankruptcy Law, filing a Chapter 7 bankruptcy will cancel all your debts and give you a fresh start. However, a Chapter 7 bankruptcy will only temporary halt the foreclosure process. This is because, according to Nolo, as part of your mortgage you are required to sign both a promissory note and a lien. The promissory note is a document saying you will repay your mortgage. The lien enforces “performance on the promissory note.” Filing a Chapter 7 bankruptcy will cancel the promissory note but not the lien. Therefore, if you have to file a Chapter 7 bankruptcy, you’ll have no chance of keeping your home.
If you’d like to learn more about how a Chapter 13 bankruptcy can help you keep your home, contact us.