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Forbearance in Bankruptcy

Forbearance in bankruptcy can be a complex matter that requires help from a qualified attorney. Forbearance is a special financing arrangement that delays loan payments and prohibits banks from commencing with foreclosure or repossession of property used to secure the loan.

Forbearance in bankruptcy can go awry because technically borrowers are defaulting on the forbearance plan once they record their bankruptcy petition. However, when the petition is submitted the courts enter an automatic stay that stops collection activities from all creditors, including mortgage lenders.

Banks can counteract by filing a motion that removes the stay. If courts rule in their favor, there goes your house. People often believe that filing bankruptcy will save their home and eliminate their debts. Nothing could be further from the truth.

Bankruptcy issues a devastating blow on many levels. There is the obvious financial impact and total destruction of credit scores, but there is also the emotional aspect. I've yet to meet anyone who felt good about filing bankruptcy. It is a tough blow to the ego and can conjure up emotions of anger, depression, and failure.

Losing a home to foreclosure is not easy either. There's nothing fun about being forced to pack belongings and walk away from your American Dream. There is also the issue of finding a place to live while in the midst of bankruptcy. Most landlords don't want to rent to people who might not be able to pay the rent.

Forbearance in bankruptcy actually places you in a good position for negotiating with your lender. By issuing a mortgage forbearance agreement they have demonstrated willingness to help stop foreclosure. Chances are they will continue to work with you while reorganizing mortgage debt. It's best to obtain legal counsel as to how to approach your lender if it becomes necessary to file bankruptcy.

It is important to spend time researching how to file bankruptcy, how forbearance agreements work, and explore bankruptcy alternatives. The approach taken depends on many variables including amount of outstanding debt, earned income, assets secured by loans, and type of debt owed.

Debtors should review regulations set forth in the Bankruptcy Abuse Prevention and Consumer Protection Act. These new bankruptcy laws drastically altered the bankruptcy process, making it more costly, more difficult to file, and nearly impossible to remain in compliance with payment plans.

Certain types of debt cannot be discharged through bankruptcy including student loans and IRS taxes. Nearly everyone who files bankruptcy is required to establish a payment plan under Chapter 13. Bankruptcy payment plans remain in place until court ordered debt is paid in full, with the average duration being 3 to 5 years.

Unlike forbearance in bankruptcy, debtors do not receive the opportunity to skip Chapter 13 payments and make them up later. If installments are not remitted to the bankruptcy Trustee, creditors can request dismissal for non-compliance.

Although filing bankruptcy has serious consequences, sometimes it is the only realistic option. As long as you make informed decisions based on the knowledge you have at hand. We invite you to learn more about mortgage forbearance, personal bankruptcy, and ways to avoid bankruptcy in our personal finance library.

It is always best to obtain legal counsel regarding real estate and bankruptcy issues. It is of particular importance when forbearance in bankruptcy is involved.


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Published on December 28, 2010 at 02:22 AM | Comments: 1

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Erin Belmore Woodinville | October 24, 2012 12:12 PM

 

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