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For some, bankruptcy is the only way to stop foreclosure

The crash of the housing market back in 2008 is still affecting millions of homeowners across the country. Many New Jersey residents who hoped their homes would increase in value when they bought them before the housing crisis are still struggling with declining home values. For some of them, bankruptcy could be the only way to stop foreclosure.

Some people are lucky enough to be able to keep their heads above water even though their homes are underwater, which means the homes are worth less than the current balances on their mortgage loans. Data indicates that many of these properties are considered starter homes -- houses purchased by first-time buyers. Even as researchers say that home values are improving across the country, the owners of these homes are typically not seeing an increase.

In some New Jersey neighborhoods, it is difficult to determine the current value of a property since many comparable properties were either subject to foreclosure or sold as a short sale, which tends to skew the value of nearby homes. When this issue is coupled with unemployment -- or underemployment -- due to the recession or a natural disaster, numerous homeowners continue to struggle to make payments on their homes. If homeowners are unable to refinance their mortgage loans or sell their homes, they could be facing foreclosure.

The question then becomes what to do next. Filing for bankruptcy could stop foreclosure, at least temporarily. The first decision a homeowner needs to make is whether to keep the home. A review of his or her specific circumstances alongside someone familiar with the process could help in making that choice. What type of bankruptcy is filed -- Chapter 13 or Chapter 7 -- could hinge on whether the filer wants to keep his or her home.

Source:, "Stuck With a House That Can't Be Sold", Gillian B. White, March 26, 2015

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