Marylanders who fall behind on their house payments may have alternatives to filing for bankruptcy. Unfortunately, though, for a number of reasons, sometimes these alternatives are not realistic. For example, the bank may simply have no interest in working out a deal with the borrower.
It is therefore important for families in Prince George’s County to understand what foreclosure relief bankruptcy can and cannot offer.
A Chapter 13 bankruptcy allows people to make catch up payments
A Chapter 13 bankruptcy, which allows consumers to pay off all or part of their debts through a court-sanctioned repayment plan, is a way a family can stop foreclosure altogether.
The family can do this by offering to make catch up payments on their mortgage as part of their repayment plan. The family will also have to continue making their regular monthly payments going forward. If they fulfill this obligation, then the bank will have to drop the foreclosure.
A Chapter 13 may allow a family to manage their other debts to make it easier for them to catch up on the mortgage.
Other types of bankruptcy may offer provide some limited relief
Unlike a Chapter 13, the more common Chapter 7 bankruptcy cannot stop a foreclosure permanently. The lender may file a motion for relief from the automatic stay or may wait until the bankruptcy concludes; either way, it still may exercise its legal rights to sell the home.
Still, there are other ways even a Chapter 7 bankruptcy can help. At a minimum, it will give Maryland families some additional time to evaluate options or try to negotiate with the bank.
In this respect, the Chapter 7 may free up some income for a family to devote to a negotiated loan modification or other workout with the bank.
Finally, at the very least, a Chapter 7 can help a family cut its losses. While the bank can foreclose on a home after a Chapter 7, the Chapter 7’s bankruptcy discharge prevents them from taking other debt collection action.