Bankruptcy and Foreclosure

Many people having issues making mortgage or home loan payments on time are faced with deciding what sacrifices need to be made to alleviate their situation. A house is very rarely just a piece of property, but more so a home. A place to lie back and put your feet up, a roof and protection over the heads of friends and loved ones. The thought of giving up a home can be crushing, and it can be difficult to make the decision when thinking about all the good times and memories you’re forced to leave behind. Bankruptcy may seem like an inescapable destiny when looking objectively at your problems. While this is certainly a possible byproduct of a foreclosure, no outcome is concrete in these sorts of financial circumstances. The real question is, would a preemptive bankruptcy help relieve foreclosure issues?

Bankruptcy in Defense of Foreclosure

While failing to make a mortgage payment here or there is not generally grounds for foreclosure, a pattern of this behavior is quite the contrary for financial lenders. Every mortgage holder has different circumstances and policies, but over a period of nonpayment, or several times of nonpayment, foreclosure is inevitable.

When filing for bankruptcy the first thing to expect is for the court to order relief for you from your lenders. These orders are issued automatically, with instructions to creditors to stop any and all collection processes immediately. A bankruptcy cannot stop a foreclosure, but it can grant more time and leeway until the property is finally foreclosed upon, as during bankruptcy proceedings foreclosures are often postponed.

This stay of financial execution is dependent on several factors. If the lender is granted permission from the ruling court on your bankruptcy the sale of your home, then the amount of time you have to work with can be far shortened.

Alternative Option for Bankruptcy?

Homeowners are often rightfully concerned with how a foreclosure will affect their financial future. Both bankruptcy and foreclosure will negatively impact your credit score but in respectively different manners. With a foreclosure, there is a 7-year statute of limitations, but with the foreseeable challenges that accompany a foreclosure financially, credit scores are often impacted negatively in other ways. A poor credit rating can make it difficult to successfully acquire a mortgage down the road even with some improvement.

A bankruptcy filing remains on your credit report for 10 years. Your credit score will suffer, but once the 10 year period is over, you are able to begin rebuilding your credit. Since the court grants a stay against creditors, you credit rating will suffer no further than its current state.

There are some people, and some circumstances where homeowners prefer not to take the chance in risking themselves financially in this manner, and for those cases, there are some other routes that can be taken, though they are not met without some compromise and sacrifice.

Avoid the Risks of Bankruptcy

  • Loan Alterationa process in which a lender changes the terms of the original loan in assistance to the debtor. Making payments more affordable, changing the overall loan terms, and in some cases, even the total loan balance and interest rates can be manipulated.
  • Leasing Options – the allowance from a creditor where a homeowner can lease the property out to a third party who has the option of purchasing the property at the end of the specified agreement.
  • Short Selling – the lender agrees with the homeowner to allow a sale of the property to a third party at the original property value. Though this is likely less than is what is still owed on the total loan balance, banks are often willing to allow this type of sale to avoid the risk and liability that comes with foreclosing on the home.
  • Deed in Lieu of Foreclosure the return of the deed back to the lender. Homeowners can walk away from impact on their credit score by giving the deed back to the lender, forgoing any of their already invested capital, but without their finances in disrepair.

Independent Real Estate Investor

People all over the United States are facing foreclosure and bankruptcy issues and are often lost about what their options are. If you fall under this category and are uncertain about what solutions may be available to handle your property, working with an independent real estate investor can give you the alleviation you need to achieve a favorable outcome.

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