No Housing Expense for 10 to 12 Months: A Chapter 7 filed prior to, or closely after a foreclosure filing will result in the Debtor living in the property for cost of utilities only for 10 to 12 months, possibly more. The foreclosure process itself takes 10 to 12 months to work its way through the court. The lender does not want a vacant property. They want your client to continue to keep the place heated, maintained and otherwise cared for. Therefore your client will enjoy an extended period of living in the property without paying a mortgage payment. If their normal mortgage payment is $2000/month, your client now has saved $24,000 in the 12 months of foreclosure. This is post bankruptcy income that the client can save for a down payment on a new home later on. If your client retains you to defend on the foreclosure, the time they remain in the house could be greater. This is really the only way your client will realize anything positive from the underwater situation. With one of the non bankruptcy alternatives above, your client will have their housing expenses continue at a new residence or under the modification.
b). All Discharagble Debts are Wiped Out: Your client gets a fresh start with all of his other discharagble debts gone. His only costs each month are his normal monthly expenses such as utilities, food, clothing, insurance, car payments etc.
c). Reestablishment of Credit Rating: Both foreclosure and bankruptcy will put your client’s credit rating on the floor for two to four years. However, after a foreclosure or other non bankruptcy alternatives, your client will still owe his other debt and perhaps a deficiency on the mortgage/s. After a Chapter 7, the client is debt free and, in most cases still gainfully employed. This liquidity may result in the client being able to re-establish their credit score faster than someone going through a short sale or deed in lieu of foreclosure.
d). Finality: Even if a lender chooses not to pursue a deficiency judgment after the foreclosure, it is possible that the judgment or cause of action could be sold by the lender to a judgment scavenger at a later date. This could result in your client getting demand letter years after the foreclosure from an entity that purchased the debt for pennies on the dollar. When that letter comes, three or four years after the foreclosure, your client may again have become collectable. With bankruptcy, when that discharge is entered, you’re done. That debt is never coming back to haunt your client. If you would like to learn more about the advantages of filing a Chapter 7 Bankruptcy in Illinois contact an Illinois Bankruptcy Attorney today.