There are 3 scenarios when a chapter 7 bankruptcy can be a great tool:
1. You mean I can still save my home, EVEN if I don’t qualify for a loan modification or a chapter 13 bankruptcy??
It is still possible to save your home from foreclosure even if you don’t qualify for a loan modification or a chapter 13 bankruptcy. It is possible that consumer debts were holding you back from qualifying for these strategies, but a chapter 7 bankruptcy can solve that problem.
A chapter 7 bankruptcy can eliminate burdensome debts, like credit card debts, medical debts, motor vehicle surcharges, loans, certain tax debts and personal loan debts.
Once your debts are wiped out, you can then apply for a loan modification or file for a chapter 13 bankruptcy, with much better odds of being approved. Using a chapter 7 to make yourself qualify for a chapter 13 bankruptcy is referred to as a “chapter 20 bankruptcy” and can be a useful tool if you want to save your home from foreclosure.
To find out more about whether or not a chapter 7 bankruptcy could be right for you, and whether or not you will qualify, read our post: About Chapter 7 Bankruptcy.
2. I don’t want to save my home, but I want to buy time, eliminate debts, live for free, avoid tax liabilities and rebuild my credit (Yes, it’s really possible!!!)
If it’s still early on in the foreclosure process and there is no impending sheriff sale, you may have already decided that you don’t want to save your home for a number of reasons; maybe it’s just not feasible to get a loan modification or enter into a chapter 13 bankruptcy, maybe you don’t want to be locked into your home for a number of years and it makes more sense to move out, whatever the reason, there are still benefits to a chapter 7 bankruptcy.
If you have racked up a large amount of debt over the years, a chapter 7 bankruptcy can eliminate these debts, while also buying you time in your home. Filing for a chapter 7 bankruptcy can buy you months in your home that you otherwise wouldn’t have had.
During the time that you are living in your home for free, you can also be saving money that would otherwise be spent on your mortgage or rent.
Also, during your prolonged stay in your home while living for free, you can rebuild your credit before you must move out. This can help you qualify again to buy another home in the future or secure an apartment to rent.
It can also help you avoid huge tax liabilities; if you allow your home to be sold at a sheriff sale, the difference in the amount of what the house is sold for and what you owe on the home is treated by the IRS as taxable income. If you don’t file for a chapter 7 bankruptcy prior to the sheriff sale, you could face owing the IRS thousands of dollars in taxes on that “income” that you never saw a dime of.
Moreover, if your financial situation changes for the better, and you change your mind and decide that you want to save your home, you can still apply for a loan modification, or chapter 13 bankruptcy, even after filing for a chapter 7 bankruptcy.
3. My sheriff sale is tomorrow but I’m not prepared and still need more time…
If your sheriff sale is scheduled, a chapter 7 bankruptcy can still help you eliminate debts and buy you time you otherwise wouldn’t have had in your home. Once you get your adjournment (postponement) of your sheriff sale, giving you 30 more days, filing for a chapter 7 bankruptcy next can buy you an additional 90 days in your home. This can be highly valuable if you are still ironing out details of your move. Also, like in the previous scenario, it can assist you in avoiding tax liabilities.