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Mortgages and bankruptcy

Various problems, like job loss, a medical crisis or a death in the family, could motivate Mississippi consumers to pursue bankruptcy when their income cannot keep up with debt payments. About two-thirds of the non-business bankruptcies filed by individuals fall under Chapter 7 bankruptcy rules. A Chapter 7 bankruptcy requires the sale of assets to recover money for creditors before a judge typically discharges remaining debts. Certain assets are usually exempt from liquidation, like the family home, but the mortgage on the family home might still remain a burden if not included in a bankruptcy.

About one-quarter of Chapter 7 bankruptcies involve real estate mortgages that have not been paid for 120 days. Often these properties qualify for the homestead exemption, and borrowers choose to apply the exemption. They hope to save the home after bringing their other debts under control, but this choice removes the home mortgage from the bankruptcy process and sometimes leaves them exposed to foreclosure if they still cannot make payments.

In some cases, a lender has already initiated a foreclosure action when the borrower files for bankruptcy. Borrowers might still choose to ask the court to remove the mortgage from consideration because they hope to avoid the complications involved in selling the property under the supervision of a trustee. This decision, however, might still leave a borrower exposed to the negative effects of foreclosure, like a bad credit history.

A person concerned about mounting debts that threaten to cause foreclosure or wage garnishment could learn about legal options for debt management from an attorney. An evaluation of debts and income by an attorney could reveal that the person qualifies for fling under Chapter 7.

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