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How a Chapter 13 bankruptcy can protect your home


While many Louisville, Kentucky, residents may be under the impression that any type of bankruptcy will stop a foreclosure, such an impression is only true to a certain extent.

It is true that a bankruptcy as a rule imposes an automatic stay on creditors, including banks which are in the process of foreclosing on a debtor's home. This means that a bankruptcy can, at a minimum, delay a foreclosure action.

However, if the debtor is behind on his or her mortgage payments to the bank, then filing for bankruptcy, at least under Chapter 7 of the bankruptcy code, will not stop the bank from foreclosing on the home in the long run.

To explain, while the bankruptcy will prevent the bank from coming after the debtor for any outstanding balance on the loan, it does not undo the bank's lien on the house, and the bank is free to sell the home at a foreclosure auction in order to pay off the lien. All the bank needs to do is wait until the bankruptcy has concluded.

However, a Chapter 13 bankruptcy offers debtors an additional means of protecting their home in that debtors are free to roll overdue mortgage payments in to their overall repayment plan to creditors. Provided that the plan gets approved and the debtor manages to follow through on the plan, at the end of the bankruptcy, the debtor will be caught up and will thus have saved their home from a foreclosure.

Louisville residents who are in financial trouble and are trying to prevent losing their home to foreclosure can and should explore bankruptcy as an option for doing so. However, they need to be aware of what each type of bankruptcy can and cannot accomplish with respect to their goals.

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