It may be possible for Florida homeowners in distress to use bankruptcy strategically to stop foreclosure. Chapter 13 bankruptcy could be of particular use to those seeking a fresh financial start as it may allow them to stay in their homes.
RealtyTrac explains that Chapter 7 bankruptcy typically is not the best option for a homeowner in danger of losing his or her home. Chapter 7 can stop foreclosure only temporarily, and at a court's discretion, but it is a liquidation bankruptcy. This means the home will either be sold to pay debt or the bank will end up with it, depending on the situation. Chapter 13, on the other hand, could prove more useful.
The Florida Bar goes into detail about some of Chapter 13 bankruptcy's potential benefits to homeowners. Chapter 13 allows for a wider range of debts to be discharged (i.e., legally satisfied and eliminated) than Chapter 7 provides, but the discharge is not immediate under Chapter 13. Rather, a debtor must create a repayment plan to satisfy some portion of what is owed to his or her creditors. A discharge is granted only after all the stipulated payments have been made.
Filing for Chapter 13 could help a homeowner achieve the following:
- more manageable mortgage payments
- an end to harassing debt collection tactics
- a chance to make things right with the mortgage company
- halting of foreclosure actions
Chapter 13 has limitations. After a discharge is granted, creditors may still be able to pursue the debt by going after co-signers. Also, it may not be possible to modify terms of a loan beyond the requirement that creditors accept the payment plan.