How to Declare Bankruptcy to Stop Foreclosure
- 1). Contact your local housing assistance agencies. Housing counseling agencies have been set up to help homeowners who are facing foreclosure. You can find one in your area by visiting the U.S. Department of Housing and Urban Development (HUD) website (see the Resources section).
- 2). Consult with a lawyer who is experienced in bankruptcy, if you decide to file. Some attorneys offer free initial consultations to homeowners who wish to declare bankruptcy to stop foreclosure proceedings. Neither bankruptcy nor foreclosure is beneficial to your credit rating, but for some it may be the right choice to alleviate severe financial hardship. According to MoneyBlueBook.com, depending on the particular credit reporting agency, a Chapter 7 bankruptcy may stay on your credit record for ten years and a Chapter 13 bankruptcy remains for seven years.
- 3). Examine your personal financial situation to determine the best course of action. Filing Chapter 7 bankruptcy allows you to wipe out the majority of your debts, without losing bigger assets like your home or car, which can be exempted from bankruptcy proceedings. Filing Chapter 13 bankruptcy allows you and the court to initiate a realistic plan to repay your creditors over a three- to five-year period, explains HomeOwnership.org.
- 4). Decide which type of bankruptcy filing will best assist your particular situation. A Chapter 7 bankruptcy may be the best choice if all or most of your property is exempt and if the problematic debts will be eliminated, or discharged, advises Peoples-Law.com. Check with your particular state or attorney for a list of items eligible for exemption. A Chapter 13 bankruptcy may be the right choice if you wish to repay your debts but currently need some financial relief.
- 5). Negotiate with your mortgage lender. Explain that you are filing for bankruptcy. After you initiate bankruptcy proceedings, the court issues an Order of Relief also known as an "automatic stay," which directs all creditors to stop collection activity. According to American Foreclosure Specialists, a lender can apply to the court for a removal of the stay in order to proceed with a foreclosure, but you may be able to postpone the foreclosure by working with your mortgage company.
- 6). File the bankruptcy papers. Review and verify all information on your petition, sign it and have your attorney file with the local bankruptcy court. Once the papers are filed, if a creditor contacts you, provide them with your case number and filing date.
- 7). Attend the meeting of creditors. You and your attorney will be required to attend a court-ordered meeting with your creditors where the court will review your case and possibly provide you with a discharge.
- 8). Change your financial strategy. Commit to learning how to manage your finances better to avoid future problems. For help in this area, contact credit counseling services or nonprofit organizations dedicated to working with distressed homeowners.
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