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Avoiding Foreclosure Through Bankruptcy

Posted on in Bankruptcy

In the recent wake of the housing crisis, “foreclosure” became a household word. Many Americans continue to live in fear of losing their homes to foreclosure, due to underwater mortgages, shady bank practices, and irresponsible spending. According to a December 2012 Forbes article, while the housing market seemed to be in recovery—with pending home sales a whopping 11 percent higher than in 2011—the threat of foreclosure was still alive and well. According to Forbes, “The foreclosure crisis, which has claimed nearly four million homes, has played out very differently across the U.S.” In states such as Florida, New Jersey, and New York, the foreclosure rate is still high; 11, 8 and 5 percent respectively. “In general,” according to Forbes, “1 percent is considered a healthy [foreclosure] rate in a healthy market.”

But foreclosure doesn't have to be the only way. According to CNN Money Magazine, “bankruptcy can bring foreclosure proceedings to a halt,” in addition to ending harassment from debt collectors and buying time to pay off borrowed debts. “In some cases,” according to CNN Money, “bankruptcy can also help mortgage borrowers save their homes permanently.” Bankruptcy can't solve every problem for every homeowner facing foreclosure, of course—if you're just plain out of money, bankruptcy won't solve that. As one attorney told CNN Money, “it's the best tool there is for people behind in payments but who have ongoing income.”

There are two main types of consumer bankruptcy—Chapter 7 and Chapter 13. According to the U.S. Bankruptcy Court, Chapter 7 provides for liquidation, which means that the debtor's nonexempt property is sold, and proceeds are distributed to creditors. CNN Money states that a Chapter 13 is better if you're attempting to keep your home from foreclosure; a Chapter 13 provides for an adjustment of debts. Again, you're only eligible for Chapter 13 if you have a regular income.

If you or someone you know is considering bankruptcy to avoid foreclosure, or for any other reason, don't go through it alone. Contact a dedicated Illinois bankruptcy attorney today.

Image courtesy of phanlop88 / FreeDigitalPhotos.net

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