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Home in foreclosure? Filing for bankruptcy may be the answer

For many Tennesseans, owning a home is a dream come true. For others, it is a nightmare of late payments and lender phone calls. How bad the story gets often depends on the lender. Some will work with the homeowner, allowing a loan modification or short sale. In many other cases, the lender will press forward with the foreclosure process. For people stuck with a recalcitrant lender, filing for bankruptcy may make sense.

Foreclosure is a process in which a creditor will attempt to repossess the home and, normally, sell it at a public auction. The lender then takes the proceeds of the sale to pay the cost of the auction and legal fees. Whatever money remains then goes to pay down the homeowner's debt.

Foreclosure does not happen overnight. It takes time. Lenders generally wait for the homeowner to become 60-to-90 days late on their payments. That delay gives homeowners an opportunity to consider alternative options like a short sale, a loan forbearance or a deed in lieu of foreclosure.

Another option is bankruptcy. A person can file for Chapter 7 or Chapter 13 bankruptcy. Under either, the bankruptcy court will issue an automatic stay that forces creditors to immediately stop trying to collect. So, for example, if a creditor has begun the foreclosure process, and the homeowner files for bankruptcy, the foreclosure normally must come to a screeching halt.

There are two exceptions. The first is if the lender files a motion to lift the stay. If the court says yes, then the creditor can re-ignite the foreclosure process. But even if that happens, the filer will have bought themselves a couple months, perhaps several to dig themselves out. The second exception is if the creditor has already filed the foreclosure notice. Once that notice has been given, it may be too late.

To learn more about how bankruptcy may be a way out of a looming foreclosure, Tennesseans may benefit from speaking with an experienced bankruptcy attorney.

Source: FindLaw, "Facing Foreclosure? How Bankruptcy Can Help," Accessed Mar. 8, 2016

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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