In the last post, we looked at using bankruptcy as a way to fight foreclosure. As we said there, in many cases, using a Chapter 7 bankruptcy is likely only to delay a foreclosure, not to stop it. However, there is more than one type of bankruptcy. If a debtor qualifies for Chapter 13 bankruptcy, there are more options available for keeping a home and fighting off foreclosure.

Filing for bankruptcy protection won't trump a foreclosure, in and of itself. However, it can free up some cash flow that can be put toward a mortgage. In a Chapter 13 bankruptcy, the debtor does not typically lose their property. They do not have to liquidate their assets to pay creditors. What they do is reorganize their debt, making a payment plan that may cover a period of three to five years. A foreclosure may be able to be resisted by including mortgage payments in the Chapter 13 repayment plan, and making a payment plan to pay off unpaid arrears on the mortgage.

One obstacle to this route is that not all debtors will qualify for Chapter 13 bankruptcy. Chapter 13 is sometimes referred to as the "wage earner's bankruptcy," because if a debtor does not have a job, it is difficult to make a realistic payment plan that a bankruptcy court will accept.

It is important to remember that a bankruptcy attorney should be consulted about using bankruptcy to fight foreclosure. Bankruptcy laws will apply to specific circumstances differently. Laws about property that is exempt from bankruptcy can be more complicated than they appear. Expert advice is needed to ensure that using bankruptcy will have the desired effect.

Source: Forbes "Going Bankrupt in 2012, but Keeping Your Home" Dec. 8, 2011