Chapter 7 bankruptcy and home foreclosure are technically two separate processes which do sometimes cross over each other. Meaning: your foreclosure might have nothing to do with your filing personal bankruptcy, and your filing may not involve your home at all. But often they do.
Some think that if you file Chapter 7 bankruptcy, some things happen which do not. You can discharge all your mortgage debt and keep the home... you'll always lose the home to your trustee who will sell it... or even that just by filing bankruptcy you can stop a foreclosure process in the works.
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Actually, you cannot discharge mortgage debt and keep the home. You can keep your home; in fact, most filers do. Unfortunately, if a foreclosure process is under way, the only thing Chapter 7 can do is buy you several months to find a new place to stay (which has the advantage of saving you money for several months, as you're not responsible to pay the house payments).
You can keep your home when you file for personal bankruptcy, but you should never do it alone. You need an experienced lawyer who can walk you through all the steps. If you play your cards right, you quite often will gain far more than you lose.
How Chapter 7 Works
This is a liquidation, but that kind of sounds like you lose everything: you don't. The majority of Chapter 7 filers lose absolutely nothing. If you do lose something, it need not be your home if you follow your lawyer's guidance. Chapter 7 will discharge most major debts such as credit cards, and can technically discharge a mortgage. On the other hand, you can negotiate with your lender outside of bankruptcy, and pay for it separately so you can keep it.
How Foreclosure Works
Foreclosure occurs when you fall behind in mortgage payments. Unfortunately, in the sluggish economy the U.S. has had for the past years and due to the mortgage crisis, it's quite common. You can avoid it in a variety of ways, sometimes keep the home, sometimes selling it and absolving debt, or filing for Chapter 13 bankruptcy.
The Processes Are Separate
You may wonder why Chapter 7 can hurt your home. Technically, you can separate these two processes, and an experienced lawyer would tell you to. If you make your mortgage part of your bankruptcy it does not mean you'll lose it, but if you cannot pay on it you might.
Chapter 13
Chapter 13 bankruptcy is less used, but it has distinct advantages if you want to keep your home. If you file before the foreclosure process gets started, you can renegotiate your loan so you can afford it. You are not discharging any debt this way, but you are keeping your home and making payments affordable over a 3-5 year plan.
Keeping Your Home
If you're still unsure of the details of filing bankruptcy and avoiding foreclosure, you definitely need the assistance of an experienced lawyer. There are too many details involved for one article, such as the Homestead Exemption.
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