You can file for bankruptcy under Chapter 7 if your mortgage and other commitments are more than you can handle. The bankruptcy court must discharge all obligations, except for a few specific categories such as child support and tax return fees. Some of your assets will first be sold to your creditors by the Court. Chapter 7 can clear your mortgage debt, but the lien or the lender’s title can not be removed in your home. It means that the lender is still allowed to shut down, but you can prevent that by using bankruptcy.
- Speak to a credit counselor. According to the Credit Information Centre website, federal legislation mandates consultation six months before Chapter 7 is submitted.
- Register with the Federal Insolvency Court Chapter 7 and pay the filing fee. You can download the form and guidance from the website of the US Courts. You can show that you can, for example, pass one of the revenue tests in Chapter 7. Your earnings are below the average, and your assets and debts are known. If you apply for Chapter 7, the Court shall immediately prohibit your creditors from taking legal action against you, including forfeiture.
- Keeping paying your mortgage until it is already in default. Pay late if necessary, if you are late on loan. Chapter 7 can defer forfeiture, but the lien is not removed. If you don’t keep up with your mortgage, the lender must close after bankruptcy.
- Make a financial roadmap for life after bankruptcy. Chapter 7 sets out the clearance of medical expenses, credit card payments, and other loans to ensure you have more mortgage funds. This might mean the difference between home loss and retention.
Focus Attention
Your lender can ask the Court to deny automatic residence and to continue foreclosure. Nolo says most borrowers assume that the effort doesn’t make worthwhile, but is possible.
