One of the biggest fears you may have as an Illinois homeowner is falling behind on your mortgage. Though you may be current on payments now, you cannot help but wonder what your options are if things take a bad turn. Most lenders start the foreclosure process once borrowers are three months or more behind on payments.
Bankruptcy is a solution that many people turn to when they are in danger of losing their homes. Here are some facts that may help you understand how you might benefit from the process if you become delinquent on your mortgage payments.
Income affects bankruptcy options
If you still make a decent income and are simply struggling to pay your mortgage because of an unexpected financial emergency, Chapter 13 might be a good fit. Though you like the idea of not having to pay certain debts back and to keep your home, Chapter 7 might not work well for your situation.
Chapter 7 has limitations
The law allows for bankruptcy filers to claim exemptions to protect their home and certain assets. Often, in order to keep your home in Chapter 7 bankruptcy, its equity must be less than the exemption limits. If your property has equity that is over the limits, the trustee could sell your home and liquidate other assets to pay down your debts. Another downside if you have modest income is you may not qualify for Chapter 7 because of the means test.
Chapter 13 requires repayment
Chapter 13 may be ideal if you want to catch up the arrears on your mortgage. Chapter 13 is for debtors who do not meet the eligibility criteria for Chapter 7 or who are interested in a repayment plan. Chapter 13 bankruptcy can help you keep your home. The trustee negotiates with your creditors and mortgage lender to modify your financial obligations, so your payments are more affordable for your situation.
Before filing for bankruptcy, you may want to reach out to your mortgage lender and inform the company of your situation. Many mortgage companies have hardship programs in place to keep borrowers from defaulting. Other options may also be available.