Foreclosure and bankruptcy laws are quite similar in their scope. A foreclosure is when the bank or mortgage lender for an individual's mortgage auctions off the individual's house when mortgage payments aren't being made regularly. Similar to a bankruptcy, a foreclosure is a way of saying that the individual is unable to pay for the mortgage on their home or assets.
However, there are some major differences between declaring bankruptcy and a foreclosure. While bankruptcy is an individual's personal legal motion toward their own debt, a foreclosure comes from the mortgage lender. There are only a few options to get out of a foreclosure while there are many during an individual's bankruptcy period. For example, federal law stipulates that once someone declares bankruptcy, the harassment that may come from creditors through letters or phone call cease.
However, just declaring bankruptcy gives the individual no protection against a foreclosure. A foreclosure needs to be looked at as a payment that needs to be repaid no matter what. If you're in a bad, short term financial position, then the individual should seriously look at paying mortgage payments at all costs. Another way to look at the differences is that bankruptcy law only helps with the private finances of the individual and helps mitigate a relationship between the individual, the federal government, and the lenders involved.
A foreclosure is a legal motion from the mortgage lender and if the individual doesn't pay the mortgage with its possible interest, then the foreclosure will go on as planned. If anything, declaring bankruptcy could help pay an individual's mortgage just in the form of added savings and salary from less debt. Depending on the type of bankruptcy declared, the individual may have more cash to utilize for their mortgage payments.
Whether they gave up assets through Chapter 7 bankruptcy or created a managed payment plan through Chapter 13 bankruptcy, a mortgage lender will still demand the money owed to them. Arguably, declaring Chapter 13 bankruptcy is probably the best policy, since Chapter 7 bankruptcy could declare possessions, such as your home, to be repossessed. It is critical to note that certain states have laws protecting individuals from having their houses repossessed during a Chapter 7 bankruptcy. Nevertheless, by declaring Chapter 13 bankruptcy, the individual could be able to have the money to help avoid foreclosure.
Although there are significant differences, bankruptcy and foreclosure necessitate a relationship be made between the borrower and the lender. For example, sustained communication with your mortgage lender is always preferred so that all channels and payment choices may be on the table. Mortgage lenders are often open to payment plan options that could be agreed upon by you and the mortgage lender. The option of refinancing your home is another alternative route so that the interest rate on your mortgage could be lowered. One of the most radical options to avoiding a foreclosure is selling the house, possibly through a short sale. This may fully settle your debt with the mortgage lender.
Bankruptcy laws and foreclosure have similarities between them. However, it's important to retain in mind the differences between the two. This will help an individual reassess their economic position.
