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Will a bankruptcy help me if my home is in foreclosure?

The nationwide economic crisis that began a few years ago left many New Jersey homeowners reeling from a sudden drop in home values. A homeowner who decided to take advantage of rising home values prior to the crisis might have taken out a home equity loan in addition to an already existing first mortgage.

When property values plummeted, the homeowner with two mortgages suddenly owed more than the home was worth. It was common in communities throughout Monmouth County and the rest of the state for a family to be confronted with unemployment, mounting debt and a mortgage lender knocking at the door to serve foreclosure papers.

Although economic conditions have improved, foreclosure is still a reality for many mortgage borrowers. One method of dealing with financial challenges and foreclosure is by filing for bankruptcy.

A Chapter 7 or a Chapter 13 bankruptcy results in the court issuing an automatic stay of collection efforts by creditors. The stay goes into effect as soon as the bankruptcy is filed with the court, and it includes a temporary halt to foreclosure proceedings, including postponement of any scheduled foreclosure sale of the property by the mortgage lender.

A word of caution is in order about the automatic stay. A bank or mortgage company has a security interest in your home. The mortgage document that is recorded by the lender against the property makes your bank a secured creditor. As a secured creditor, the lender can request that the bankruptcy court remove the stay and allow the foreclosure to continue.

Foreclosure and bankruptcy are complex areas of the law involving significant property rights and legal issues that are beyond the scope of this posting. The information contained in this post is offered and intended as an overview of the topics covered, but it should not be relied upon as legal advice. You should consider seeking legal advice and guidance from a knowledgeable bankruptcy attorney if you are involved in a foreclosure or considering filing for bankruptcy.  

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