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Which bankruptcy chapter can stop foreclosures?

When times are hard and debts have become overwhelming, New Jersey homeowners may want to explore the available options. The primary effort for many will likely be to prevent foreclosure. Those with concerns may learn that personal bankruptcy can stop foreclosures, but choosing the most suitable option may require professional advice and guidance.

While Chapter 7 bankruptcy can bring reprieve, it cannot permanently stop foreclosure. Chapter 7 bankruptcy provides relief from unsecured debts, such as medical and credit card debt, but not from secured loans, such as mortgages. Although the discharge of some debts may enable the homeowner to meet mortgage payments, the automatic stay that is implemented upon filing for bankruptcy will not be permanent.

However, there is a bankruptcy option that may be viable. Chapter 13 bankruptcy will allow a homeowner to sit down with creditors and make payment arrangements for three to five years. Once agreed upon by creditors such as mortgage holders, the payment plan must be presented to the court for approval. By following the agreed plan, delinquent payments can be caught up and foreclosure prevented. It is important to understand that even missing one of the agreed-upon payments can cancel the agreement and jeopardize the homeowner's chances to keep the home.

Not every New Jersey consumer will qualify to file for bankruptcy. A means test has to be completed to determine eligibility. For guidance through the required legal proceedings to stop foreclosures, it may be beneficial to consult with an experienced bankruptcy attorney. A lawyer can explain all the available remedies after assessing the client's financial circumstances, allowing the homeowner to make informed decisions that might save his or her home.

Source: realtytrac.com, "Truth About Bankruptcy Foreclosure", July 22, 2016

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