5 money jams bankruptcy can fix

Imminent foreclosure
6 of 7

Homeowners who are at risk of foreclosure may find a solution in bankruptcy, Herman says.

"When there is a looming foreclosure, a bankruptcy is a very effective means of stopping that event and keeping someone in their home," she says.

A Chapter 13 bankruptcy can help homeowners who have fallen behind on their mortgage payments and "provide a solid long-term method for a homeowner to be able to manage a mortgage," Herman says.

Meanwhile, a Chapter 7 bankruptcy can buy time for someone facing a foreclosure by stopping the pending action and requiring that a new foreclosure be initiated at a later date.

"The Chapter 7 bankruptcy also will address other debt issues that the homeowner is facing and prevent any collection activity from junior lien holders that (were) not satisfied with the proceeds from the foreclosure sale," Herman says.

However, Ehrenberg urges consumers to remember that "the purpose of bankruptcy is to resolve debts and to create a fresh start, and it's not to be used simply because it creates a stay -- that you have no intention of actually reorganizing, but only buying time," he says.




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