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When bankruptcy and foreclosure happen together

It would be nice if life happened in easily digestible pieces. It seems, especially with respect to bad news, things like to happen all together. Often a health crisis will precipitate a loss of work or a job, which can lead to falling behind on your bills, foreclosure notices you’re your lender and it eventually leaves you with the prospect of a bankruptcy.

Any one of these items would be difficult on their own, but when the pile on, they can make life very difficult. Because events that lead to foreclosure often lead to bankruptcy, and while both are legal actions, how each one operates is very different.

A bankruptcy is a federal action, and occurs in the bankruptcy courts. Foreclosure is a state action, and may occur in a state court, but in some states a lender may not have to go to court to complete a foreclosure. In Kentucky, however, the lender must go to court and it is known as a judicial foreclosure state.

While the events that can lead to each may happen at the same time, the bankruptcy proceeding will typically stop or place temporarily on hold a foreclosure case. If you have filed a Chapter 13 to save your home from foreclosure, you need to develop a Chapter 13 repayment plan that will enable you to pay your mortgage payments and any other secured debts.

You need to remember, simply because you discharge a debt like a mortgage, the discharge does not enable you to remain in a home. It prevents the lender from collecting the outstanding debt from you personally, but it does not grant you ownership of the home. The lender can still foreclose and evict you from the premises.

The interaction of these two proceedings can be complex, so be careful how you react and seek professional guidance, if necessary.

Source: ABC News, "Foreclosure on Property After Bankruptcy?" Justin Harelik, October 25, 2013

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