How Bankruptcy Can Help with Foreclosure in Arlington Heights

In the unfortunate event that you face foreclosure, bankruptcy can provide an alternative that might allow you to keep your home. Foreclosures occur when a lender, such as a bank, chooses to respond to missed payments by putting the home up for auction, and using the proceeds to pay off the loan. The process takes some time, and often happens only after several months of missed payments, which gives you time to try various remedies, including bankruptcy.

Delaying Foreclosure in Arlington Heights

At the beginning of the bankruptcy process, courts will issue an “Order for Relief.” This order includes an automatic stay, which tells your creditors to put a hold on any collection actions taken against you. This includes foreclosure sales, which will not go through until the court settles the bankruptcy, something that usually takes three to four months. However, lenders can circumvent this order using a “motion to lift the stay.” The judge may decide to grant that motion in certain situations. For instance, if the lender already filed a notice of foreclosure with a warning period before the bankruptcy, then the judge may grant the motion after the warning period elapses.

How Chapter 13 Bankruptcy Can Help in Arlington Heights, IL

Chapter 13 bankruptcy plans may allow you to avoid foreclosure and keep your home. Chapter 13 lets you set up a plan to pay off your late payments over a period of years, provided that you have enough income to keep up with the current payments at the same time. If you make all the current payments, and make up the old ones, then you can keep your home at the end of the process.

Chapter 13 plans can also help with second and third mortgages. If you owe more that your home’s value on the first mortgage, then Chapter 13 may allow the court to reclassify the later mortgages as “unsecured,” which take low priority in the repayment process, and may end up discharged entirely.

Arlington Heights Bankruptcy - Chapter 7 Cannot Cancel the Foreclosure

Chapter 7 plans differ from Chapter 13 in that they require the sale of your property to pay off some debts, and then discharge the remaining eligible debt. However, the discharge of the debt will not prevent a foreclosure. Banks often require you to secure a mortgage with your house, meaning that they can take the house back if you do not pay. While the Chapter 7 plan can discharge the debt, it does not eliminate the bank’s right to foreclose on the home in an attempt to recoup its loan.

Not everyone can use Chapter 7 bankruptcies, and even some of those who can, may not want to. People only qualify for Chapter 7 if their income will not allow them to fund a Chapter 13 repayment plan, and if their income does not exceed the median income in their state for a household of their size. Additionally, Chapter 7 can cause you to lose property you may not want to sell in order to pay off the debts.

Arlington Heights Bankruptcy’s Effect on Your Credit Score

Bankruptcy and foreclosure both negatively affect your credit rating. However, a foreclosure will not discharge your other debts, and it does not leave you in as good a position to start repairing your credit score. So, while they both have consequences for your credit score, bankruptcy’s effects may end faster.

Even though Chapter 7 plans will provide only temporary relief, you may still stand to benefit. While losing your home can be difficult, you might not have a choice. In that situation, bankruptcy offers a way to save some money, and find a way to a fresh start.

For help with bankruptcy questions, please contact us at Newland & Newland today. We provide support to clients in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.

  • Newland & Newland LLP, Attorneys, Arlington Heights, IL
  • Lawyer.com