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Could Chapter 13 bankruptcy help you avoid foreclosure?

There is still a lot of social stigma attached to bankruptcy in the United States. Although these protections exist for a reason, many people think that those who file are doing something wrong. That could not be farther from the truth. People end up in financially precarious situations for any number of reasons, even after a lifetime of hard work and fiscal responsibility. Many households in the United States are only one lost job away from financial devastation.

Something like a car accident or a medical event like a stroke could completely change your family's financial situation. Overnight, you could go from meeting all of your obligations to struggling to make even minimum payments on lines of credit. When your finances spin out of your control, you can find yourself in danger of losing your house. In that scenario, Chapter 13 bankruptcy is possibly your best option.

Chapter 13 bankruptcy protects your assets, even if you have income

There are two primary kinds of bankruptcies offered to the average citizen. Chapter 7 is the form most people think of. It involves a means test that looks at your income. If you qualify for Chapter 7, some of your assets will get liquidated by the courts, but all your unsecured debts will get discharged at the end of the process.

For people with substantial assets or those who have an income over the state median, Chapter 7 may not be the best option. Thankfully, Chapter 13 bankruptcy offers many excellent benefits to those struggling financially without the same limits on the value of assets or household income.

People who file for Chapter 13 bankruptcy have the opportunity to restructure their debt, reduce their monthly payments and eventually discharge the remaining balance on some forms of debt.

Bankruptcy can help stop early foreclosure proceedings

If you have missed a mortgage payment or two, your bank may already be looking at foreclosure. Typically, you will receive notices in the mail before anything goes to court. However, you may not have the funds available to make payments as initially arranged.

Filing for Chapter 13 bankruptcy results in an automatic stay of debt collection activities. That can include filing new legal proceedings in court. You can use that extra time to negotiate with your bank and potentially modify your mortgage. Barring that, it may be possible to adjust other payments obligations enough to make your current mortgage payment feasible.

Instead of giving up on home ownership and losing out on all the equity you have established in your home, you should sincerely consider whether Chapter 13 bankruptcy might help you gain a financial fresh start while also allowing you to maintain your most important asset.

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