Chapter 7 bankruptcy is essentially a method for debtors to eliminate their debts through a procedure which will give them a summary discharge. Foreclosures are a method in which homeowners stop paying their mortgages after a certain period. Often there are multiple transactions between foreclosures and bankruptcy. Chapter 7 bankruptcy does not, at all, stop a foreclosure from occurring on your house.
First, it is necessary to analyze whether or not your home loan has fallen behind. It is very common for many homeowners to fall behind on their mortgage payments when they first purchased their home. The problem comes into place when this happens on a regular basis. When a home is fallen behind on its mortgage payments, it becomes difficult for the lender to sell the property. The lender must then attempt to foreclose on the home even if the current owner has already fallen behind on their mortgage payments.
A means test is used to determine if a debtor is able to pay their monthly income and their expenses. If a debtor has a monthly income which is significantly lower than their expenses, it is more likely that the debtor will be unable to continue making their mortgage payments. As long as the monthly income meets the required monthly expense of expenses and there is some equity left it is unlikely that a chapter 7 bankruptcy will be granted. However, the debtor may still qualify for a chapter 7 bankruptcy if their monthly income and expenses do meet the required criteria.
When a debtor files for chapter 7 bankruptcy their home is usually protected. However, the lender can file a motion to have the house sold at auction if there is no qualifying inspection. This is called an involuntary foreclosure process. This process occurs only after the lender has taken legal action to start the foreclosure process. Once the house has been lost, the lender is entitled to sell it through public auction. A trustee will oversee the sale and negotiate a repayment plan with the borrowers.
Many people believe that filing for chapter 7 bankruptcy automatically protects their credit. However, this is not true. There are two different types of bankruptcy: debt settlement and debtor's ineligibility. A chapter discharge is not considered a credit event; therefore creditors will not be allowed to pursue collection on a debtor's unsecured debts during the chapter discharge period. Only a chapter 7 bankruptcy can result in recovery of these debts after the discharge has been granted.
Some homeowners believe that filing for chapter 7 bankruptcy might prevent them from being able to purchase a new home in the future. Unfortunately this is not true. Although it might keep a foreclosure from occurring, it does not prevent you from purchasing a home. If the circumstances change between the filing of the bankruptcy and the eventual sale of the home, the homeowner may be able to transfer the mortgage to another mortgage company without having to file a new bankruptcy.
As with any other type of filing for relief, there is no guarantee of approval. The court will review all evidence submitted to them and make their decision based on what they see. You should expect to be denied for a chapter 7 bankruptcy if you do not agree with their decision. The court's main concern is the financial hardships of the debtor and their ability to meet the loan payments. In order to demonstrate to the court that a homeowner is in dire circumstances, they must be able to prove that the personal liability for the property is so severe that even repaying the mortgage payments would be impossible.
There are some other reasons that a mortgage payment might be denied. A chapter 7 bankruptcy for non-payment of the mortgage might also be declined if the homeowner had repaid the property by now. Finally, a chapter 13 bankruptcy also might not be granted if the homeowner is in arrears on their IRS debt or owes child support. If you are in this situation, you should speak with an experienced bankruptcy lawyer to discuss your options.