How can Bankruptcy be a Foreclosure Alternative?
It’s not, really. But, if you have already had a judgment in a foreclosure lawsuit entered against you, there are very few ways to avoid the deficiency judgment or collection calls related to the deficiency after your property has been sold.
Simply put, bankruptcy is a way to discharge debt that you have accrued over your life. Not all debt is dischargeable though; such as, student loan debt, certain judgments, some IRS tax liens, etc. What is dischargeable are generally mortgages, credit cards, and some other types of judgments.
Is Bankruptcy an option during an active Foreclosure Lawsuit?
Of course! It depends on a lot of circumstances, but if there is only one property and a whole lot of credit card debt it may be worthwhile to pursue a Bankruptcy rather than a short sale, loan modification, or deed in lieu of foreclosure. This is due, in part, to the sheer amount of debt that may exist in your life and because a successful foreclosure defense may not truly help your position. There is no hard and fast rule, but if you have extensive debts other than your home or investment property bankruptcy may be an option for you.
There are different chapters, but the most common that I encounter in my practice are chapter 7 bankruptcy and chapter 13 bankruptcy. Each have some distinct pros and cons, but here is a brief overview:
Chapter 7 bankruptcy is a total liquidation of all assets outside of some exempt property. If use this chapter you may have to purchase back certain non-exempt property. This is best for individuals or couples with low to moderate income and a high amount of debt. It is difficult to save your home using chapter 7, as it requires a reinstatement of the mortgage or a loan modification negotiated through the bankruptcy.
Chapter 13 bankruptcy is generally where a 3 year to 5 year payment plan is entered into and the discharge is done at the end of that payment period. It typically is for individuals or couples that make a moderately high income and have varying ranges of debt. It is possible to keep your home through a chapter 13 if you pay the arrearages off through the Chapter 13 plan.
If you are interested in exploring your options after being served in a foreclosure lawsuit or have just found out you have a judgment against you from a foreclosure, I may be able to help.