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Can Bankruptcy Help You Fend Off Foreclosure?

The process of foreclosure might be a necessary evil for the mortgage lenders, but it is a nightmare for a homeowner unable to keep his or her head above water to make the mortgage payments.  Foreclosures follow a specific pattern, which every homeowner in financial trouble should know about in advance.

1. The bank sends a notice of default. After the homeowner has missed several payments, the bank which owns the mortgage will send the homeowner a notice of default, stating how much the homeowner owes, how late the payments are, and what he or she needs to do in order to get current.

2. The bank files a lis pendens. If the homeowner does not respond to the notice of default by fixing the situation, then the bank will record a document in the public records called a lis pendens.  This document is recorder to let anybody interested in the property know that litigation is pending

3. The bank files a foreclosure action. The foreclosure action is the actual lawsuit where the bank sues to recover the property and evict the defaulting homeowner.

4. The bank sells the property at a public auction. Up until the time that the bank sells the property at a public auction, the defaulting homeowner can still redeem, or buy back, the property if he or she can get adequate funds to pay off the mortgage in full.

A quick overview of this process makes it clear that the one way out of the foreclosure process, paying off the debt, is usually impossible.  If the homeowner could have stayed current on the payments, he or she wouldn’t have defaulted.

Bankruptcy can be an option that can help some homeowners in this situation.  If a homeowner can’t pay the mortgage because his or her money is drawn off to pay other debts, a bankruptcy discharge of those debts can free up resources to pay the mortgage and stay in the house. Additionally, filing a bankruptcy will stay the foreclosure and may allow for restructuring of the delinquent payments if the borrower files Chapter 13.

If you are facing foreclosure or have questions about foreclosure or bankruptcy, contact our office for more information.

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