| When homeowners consider filing bankruptcy to | | | | best just to discharge the mortgage and not |
| put a hold on the foreclosure process, most are | | | | worry about any further lawsuits regarding this |
| attempting to save their homes and establish | | | | property. With the credit crisis in full swing, some |
| some sort of payment plan. Unfortunately, legal | | | | banks may get desperate enough for cash that |
| payment arrangements established in a Chapter | | | | they start attempting to collection on deficiencies |
| 13 bankruptcy can often be too expensive for | | | | from borrowers who obviously had problems |
| homeowners just recovering from a financial crisis. | | | | paying their debts just a few months ago. |
| This is why filing Chapter 7 to eliminate the | | | | Bankruptcy is an important legal defense that |
| mortgage and other debt may be a better | | | | homeowners have against unmanageable debt |
| solution and provide better peace of mind for | | | | burdens and aggressive collections efforts, |
| some borrowers unable to keep their homes. | | | | whether they are from credit cards, collection |
| Contrary to conventional wisdom, mortgage loans | | | | agencies, or mortgage companies. Collectors will |
| (firsts, seconds, HELOCs, and so forth) can be | | | | never give up trying to go after a debt, and |
| discharged in Chapter 7 bankruptcy proceedings | | | | every day of the foreclosure process can be a |
| so that homeowners no longer have to worry | | | | nerve-wracking experience for owners unfamiliar |
| about paying an expensive loan when their income | | | | with how it works and the time frames for each |
| has dropped. But with a discharge, the owners will | | | | step. Although the social stigma of bankruptcy |
| not be able to keep their house or remain living | | | | may be severe, many debtors will liberated and |
| there for very long, as the bank will receive the | | | | generally much feel better with a fresh start and |
| collateral back as a result of the loan being | | | | no extra debt. |
| eliminated. So there must be other reasons for | | | | One concern homeowners may have is that they |
| owners to consider this tactic, since it does not | | | | do not want a foreclosure and a bankruptcy to |
| actually save the house. | | | | appear on their credit reports, which will virtually |
| The main benefit of doing this is that | | | | guarantee they do not receive a new loan for |
| homeowners are able to stop foreclosure from | | | | years. But if there is no way to save the home, |
| moving any further along in the legal process, | | | | using bankruptcy to stop foreclosure may be the |
| meaning no more court documents, lawsuit | | | | best solution to get all of the bad over with at |
| paperwork, sheriff sale dates, or eviction hearings. | | | | once. If the bank tries to go after a deficiency |
| Even if the borrowers move out of their house | | | | judgment months or a year after the sheriff sale, |
| before the foreclosure process is completed, the | | | | and borrowers are forced into bankruptcy |
| courts will still move ahead with the necessary | | | | anyway, they have merely prolonged the time it |
| procedures to sell the house to satisfy the | | | | will take to repair their credit. |
| mortgage lien. Discharging the mortgage through | | | | Discharging a mortgage in Chapter 7 bankruptcy |
| bankruptcy ends the lawsuit immediately -- the | | | | is one of the lesser-discussed methods of |
| mortgage company must cease all collection | | | | avoiding foreclosure, potentially because it has |
| efforts on the loan, which will then disappear | | | | some of the worst aspects of any solution. |
| completely upon discharge. | | | | Homeowners neither save their home nor do |
| Another important reason to consider filing | | | | they preserve much of their credit scores. But |
| Chapter 7 to eliminate the mortgage and move | | | | this tactic should be considered by debtors who |
| out of the house is the possibility of avoiding | | | | know their financial conditions will not allow them |
| deficiency judgments after foreclosure. Although | | | | to keep making the mortgage payment and who |
| few banks sue their former clients again after the | | | | just want to escape from their large debts and |
| sheriff sale for the difference between what was | | | | get a fresh start in life. |
| owed and what the property sold for, it may be | | | | |