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Bankruptcy may help you save your home

Residents of Eastern Tennessee who are experiencing financial troubles probably worry most about losing their homes. One of the most common questions regarding bankruptcy is whether the bank holding the mortgage on a home can commence foreclosure proceedings and reclaim the house. The answer to this questions is not a plain "yes" or "no." The answer depends upon many factors, including the type of bankruptcy petition that the homeowner files.

The bankruptcy code offers instant protection from foreclosure by requiring all creditors, including all mortgagees, to immediately halt collection on all debts owed. This procedure is called an automatic stay. Upon the filing of the bankruptcy petition, the court issues an order to all creditors directing them to stay collection proceedings. If a bank or other mortgagee has begun foreclosure proceedings, those proceedings must stop until the bankruptcy is completed.

The automatic stay applies to both Chapter 7 and Chapter 13 proceedings, but the final outcome of those proceedings can be very different. In a Chapter 7 proceeding, the home purchase loan is discharged, but the bank retains its right to foreclose on the property. The debtor can attempt to work out a new payment plan to retain the home, but the lender may not be willing to enter such an agreement.

In a Chapter 13 proceeding, the homeowner can submit a repayment plan that will be enforced by the court if it is reasonable and if the debtor has the income to meet the new terms. Chapter 13 also provides extra time for the homeowner to make up the delinquent payments and bring the loan current. In most cases, a Chapter 13 proceeding provides the best chance for a homeowner to keep the family house.

Choosing between Chapter 7 and Chapter 13 may have other impacts on the debtor's financial situation. A consultation with an experienced bankruptcy lawyer would be a helpful means of sorting out these differences.

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