People often turn to bankruptcy during financial emergencies. If they cannot afford their financial obligations and face aggressive collection efforts, they may consider bankruptcy. Foreclosure can lead to people losing their homes if they fall behind on payments. Their lenders can take legal action to remove them from the home and assume ownership to collect the balance due on the mortgage.
Bankruptcy can help those dealing with financial hardship temporarily delay collection activity. If they successfully complete the process, they may be able to discharge the balances due on certain eligible debts. Typically, only unsecured debts are eligible for discharge, which means that bankruptcy does not absolve a homeowner of the obligation to pay their mortgage.
That being said, people who have missed mortgage payments may consider bankruptcy as a means of delaying foreclosure and improving their financial circumstances. Is filing for bankruptcy after a single missed mortgage payment the right step to take?
Foreclosure requires multiple missed payments
Every mortgage typically has unique terms. However, there are certain standards that apply due to financial regulations and industry practices. In the vast majority of cases, homeowners with mortgages on their primary residences are not at risk of foreclosure if they miss a single payment.
Usually, people have to miss four payments in a row before foreclosure is a risk. Missing a single mortgage payment is not necessarily cause to file for bankruptcy. However, it may be a reason to carefully evaluate personal finances.
People may need to prepare themselves if they cannot catch up on their mortgage payments quickly. Both Chapter 7 and Chapter 13 bankruptcy proceedings can be beneficial for property owners. Chapter 7 bankruptcy can lead to a relatively quick discharge if people qualify. Chapter 13 proceedings put them in a favorable position if they want to renegotiate mortgage terms with their lenders.
People who have fallen behind on their mortgages and who do not feel like they are likely to catch up quickly may need to discuss their circumstances with someone familiar with bankruptcy statutes. Learning more about bankruptcy can help people avoid the loss of key resources and insurmountable financial setbacks, such as foreclosure. There may also be other options available for defending against foreclosure, depending on the homeowner’s circumstances.