Foreclosure and Bankruptcy and Your Home

I am not an attorney, but does not prohibit me from discussing the consequences of bankruptcy and how it affects foreclosure. Be sure to seek, legal council before filing for bankruptcy protection.

The two most common types of personal bankruptcy are, chapter 13 and 7. Chapter seven bankruptcy discharges all debt except IRS liens, state tax liens, and insured student loans. Also, secured debt that is attached to real estate is generally preserved through the bankruptcy. When a bankruptcy is filed, a stay or stop is granted. This means all creditors have to instantly stop their attempts to collect any debt. The person filing the bankruptcy has their assets frozen as well. No asset can be sold without the trustee's permission.

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Assets with equity can and will be sold to pay off what debt that will cover. States will differ on the specifics, but some good guidelines are a car with more than 2,500 in equity will be sold and a home with 20,000 equity for an individual or 40,000 for a couple will be seized and sold to pay off debts as well.

Filing chapter seven bankruptcy does stop foreclosure immediately. But, the banks are not deterred by this tactic. They simply have their lawyer file a motion of abandonment of asset. This is a request to pull the house out of bankruptcy protection and begin the foreclosure process again. This request takes about two months to process. It will keep you in your home for two more months. What will you do with those two months? I would work with an investor who knows short sales and can get the house sold before it goes to foreclosure. If you file a chapter seven to save your house, be sure to use this eight week gift of time to work with someone who will be on your side. If you do so, you can even lease the home with an option to buy from the new owner.


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