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Can personal bankruptcy protect my home from foreclosure?

Although the economy seems to have rebounded following the Great Recession, there are still many people in Tennessee who are living paycheck to paycheck. A medical emergency, a car repair or a lost job may be all it takes to throw a person into financial catastrophe. Struggling under debts you have no means of repaying is very stressful. And, for many people, one of the biggest hurdles they face is how to pay their mortgage.

Unfortunately, many people in such circumstances are unable to make their monthly mortgage payments and soon find themselves facing foreclosure. The thought of losing your home can be devastating. However, filing for personal bankruptcy may stall a foreclosure, at least for a while, which may make it the right decision for some.

Whether a person files for Chapter 7 bankruptcy or Chapter 13 bankruptcy an "automatic stay" will be issued by the court. This stops creditors from attempting to collect on debts. Thus, a foreclosure sale will be postponed until the bankruptcy process is finished. However, there is an important exception.

In a Chapter 7 bankruptcy, the lender can move the court to lift the stay. If granted, foreclosure proceedings can continue. However, even in this case, the foreclosure may have been postponed for a couple months, which could benefit the debtor by giving him or her some time to either find the financial resources to pay his or her delinquencies or to find a new home. And, even if the home is liquidated, having bankruptcy on one's credit report is not as damaging as having a foreclosure on one's credit report when it comes to applying for another mortgage down the road.

In addition, if the debtor filed for Chapter 13 bankruptcy, he or she can set up a repayment plan to pay off his or her arrearages on his or her mortgage over three to five years, although he or she would still be responsible for keeping up with current mortgage payments. But, if all payments are timely made, the debtor may avoid foreclosure.

Filing for bankruptcy may be the answer for those whose homes are in foreclosure. While sometimes a person can keep their home, if they can't bankruptcy can still provide them with a fresh financial start. And, with time, those who have filed for bankruptcy and have received a discharge may be able to save the financial resources needed to become homeowners again.

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