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Can filing for bankruptcy stop foreclosure in Massachusetts?

Although the worst of the housing crisis appears to be behind us, many Massachusetts residents continue to struggle to make their mortgage payments. If the mortgage becomes delinquent, the lender may exercise its right to foreclose.

In many cases, filing for personal bankruptcy can prevent foreclosure and allow the debtor to keep the family home. As soon as bankruptcy is filed, the court issues an automatic stay, which prohibits creditors from taking any collection action, including mortgage foreclosure. But, the automatic stay alone will not save the debtor's house. It only stops foreclosure proceedings long enough to allow the judge to review the situation and decide what to do.

The best option in a foreclosure situation is often a Chapter 13 bankruptcy, in which the debtor can enter into a repayment plan to catch up on mortgage payments. In a Chapter 7 bankruptcy, it may also be possible to prevent foreclosure by filing a Declaration of Homestead with the county Registry of Deeds. This allows the debtor to exempt up to $500,000 of equity in the home from being liquidated to satisfy creditors. If the homeowner does not have sufficient equity, however, the court may decide that the home must be sold to satisfy the mortgage debt.

If a homeowner is underwater and owes more on the mortgage than the house is worth, foreclosure may be unavoidable. Personal bankruptcy can still be a wise move in this situation, though. The debtor can allow the lender to foreclose, but the bankruptcy court can then discharge any deficiency balance remaining after the foreclosure.

Protecting a home in the bankruptcy process requires detailed evaluation of the debtor's total financial situation, including the value of the home, the amount of equity and the debtor's other assets and debts. An experienced Massachusetts debt relief attorney can help a homeowner make the best decisions for their particular case.

Source: Mortgage101.com, "How Declaring Bankruptcy Affects Your Mortgage," accessed on Feb. 20, 2016

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