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Do not let the threat of foreclosure ruin the holiday season

Home is where the heart is, particularly during the holidays when families gather in celebration of the season. But, for those in Long Island who have fallen behind on their mortgage payments, the threat of foreclosure is a very real worry on their mind. They may wonder if there is anything they can do to save their home from foreclosure. One option that some may have is filing for Chapter 13 bankruptcy.

By filing for bankruptcy, it halts the foreclosure process, meaning lenders cannot attempt to collect on the mortgage or continue with the foreclosure, unless they have the court's permission. Then, in a Chapter 13 bankruptcy, a three to five-year repayment plan will be established. This plan will include an income-based budget, and then the debtor will make payments each month to a bankruptcy trustee.

The trustee then takes those funds, and uses them to pay the debtor's debts. Secured debts are paid first. Following that, unsecured debts are paid off, the first of which will be past due income taxes. After that, other types of unsecured debts are paid off. Some examples of this include medical debt and credit card debt.

If a debtor sticks to the repayment plan and makes full and timely payments, he or she may be able to keep his or her home once the bankruptcy process is complete. Of course, there are limits to what the court can do.

For example, the court cannot extend the term of the mortgage, lower the debtor's interest rates or "cram down" mortgage balances. However, in some cases, they may be able to "strip off" second mortgages, since, if the value of home is less than the primary mortgage balances, there is no equity available for a second mortgage, transforming that particular mortgage into unsecured debt.

The threat of foreclosure may seem like a nightmare that never ends. But, through Chapter 13 bankruptcy, it may be possible to break through the cycle of unpaid debt, with a plan to pay back debtors, all while keeping the family home.

Source: CNN Money, "Bankruptcy can save your house from foreclosure," Les Christie, July 24, 2010

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