When someone is loaded down with debt, needless to say, it makes it very hard to keep up with a mortgage. Trying to balance all the bills along with unexpected drops in income or unforeseen expenses can cause anyone to fall behind on a mortgage. Once the mortgage is chronically late, the charges can just keep piling up and suddenly you can find yourself months behind. A garnishment really plays havoc on the cash flow as well.
Bankruptcy will stop the foreclosure process immediately. The bankruptcy laws provide for priority of debt where the mortgage can be a first priority and other debts like credit cards, pay day loans and medical bills can just be wiped out.
Foreclosure takes months to complete. Foreclosures start when the bank sends a notice of default. Washington law requires banks to compete a couple other important steps before the notice of default is sent out. These steps include offering a meeting with the homeowner and offering a chance at mediation. The mediation request has to come from a certified housing advisor or an attorney. It is important to take advantage of these Washington laws if you want to delay the foreclosure. The final step in the foreclosure is an auction when the home is sold to the highest bidder. The auction can’t take place until four months after the notice of default is sent. A bankruptcy will stop the entire foreclosure process up to the time the home is sold.
Either a Chapter 7 or Chapter 13 will stop the foreclosure, though a Chapter 7 does not offer a long term solution to the foreclosure. A bank can get the bankruptcy court’s permission to continue with the foreclosure sale if the loan remains in default. Sometimes the filing of a Chapter 7 will help with the modification process, though. Sometimes the trustee in a Chapter 7 will take an interest in the house and try to arrange for a short sale to pay other debt as a part of the process. This could slow the foreclosure down as well. A Chapter 7 could help with cash flow to allow a home owner to get caught up on their own as well.
A Chapter 13 plan allows a homeowner to get caught up on mortgage payments over five years. Of course, the debtor must be able to pay the current mortgage payments with an additional payment to get caught up over five years. The Chapter 13 plan consolidates other debt, such as car loans, and can pay as little as 0% on some debt. Chapter 13 cases also allow debtors to remove second mortgages from the title of a home entirely if the value of the home is less than the balance on the first mortgage.
Generally, bankruptcy will stop a foreclosure immediately and offer some time for a homeowner to save his home. A Chapter 13 offers a long term solution but a Chapter 7 will at least stop the process for a while.