Bankruptcy

Debt Relief

Property & Assets

Bankruptcy FAQ

Should I choose Chapter 7 or Chapter 13 to avoid foreclosure?

On Behalf of | Oct 11, 2024 | Bankruptcy

When facing foreclosure, homeowners often consider filing for bankruptcy to save their home. This is because filing for bankruptcy places an automatic stay on all debt collection activities against you. 

The two most common types of bankruptcy for consumers are Chapter 7 and Chapter 13. Each has different advantages depending on the situation.

Understanding Chapter 7 bankruptcy

Chapter 7, known as liquidation bankruptcy, allows you to discharge most unsecured debts. This process may offer a fresh start by wiping out obligations like credit card debt or medical bills. However, Chapter 7 may not be the best choice for those who want to prioritize keeping their home. This type of bankruptcy does not allow debtors to catch up on missed mortgage payments, which could lead to the eventual loss of the property. While the automatic stay under Chapter 7 temporarily stops foreclosure, it only delays the process. The mortgage debt will remain when the process is over.

Understanding Chapter 13 bankruptcy

Chapter 13 bankruptcy, often called reorganization bankruptcy, may provide a more effective solution for homeowners. Under Chapter 13, debtors create a repayment plan to pay back missed mortgage payments over three to five years while staying current on future payments. As long as you follow the plan and make regular mortgage payments, you can avoid foreclosure. This option is good for those with a steady income who can afford to catch up on overdue payments.

Which is better to avoid foreclosure in Louisiana?

For homeowners in Louisiana who want to save their home from foreclosure, Chapter 13 is generally the better choice. This type of bankruptcy allows you to reorganize your debt, pay missed mortgage payments and protect your property. Chapter 7 may be a good option for those who do not necessarily need to keep their home or for people whose mortgage debt far exceeds their ability to repay.

Ultimately, deciding between Chapter 7 and Chapter 13 depends on your financial circumstances and how strongly you feel about keeping your home. Understanding the pros and cons of each bankruptcy option can help you choose the best path to avoid a foreclosure.

Categories

Archives