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Chapter 13 or Chapter 7 can prevent foreclosure

Homeowners in Kentucky may believe that they must avoid bankruptcy at all costs. However, when foreclosure looms, bankruptcy can nip it in the bud. Although it is true that both Chapter 7 and Chapter 13 bankruptcies will remain on a homeowner's credit record for some years, if bankruptcy can save his or her home it may be worth it. Understanding some of the terms related to bankruptcy may make it easier to decide whether bankruptcy is a suitable remedy.

When a person files for bankruptcy, the court will need a comprehensive list of all outstanding debts and assets. It will then split the assets into exempt and non-exempt assets. Bankruptcy laws do not aim to strip a consumer of everything, and property classified as exempt will remain the homeowner's property, such as a portion of equity in the primary home and automobile and some essential personal items. However, the filer must forfeit non-exempt assets to pay creditors. Recreational vehicles, secondary residences, boats and other luxuries fall into this category.

Debts are divided into secured and non-secured debts. Creditors can lay claim on any assets with loans secured by collateral. The funds obtained from selling non-exempt assets will be used to pay secured debts. However, bankruptcy may discharge non-secured debts, such as credit card debt, personal unsecured loans, medical bills and more. Understanding these terms may help when determining which bankruptcy chapter to file.

When one's home is on the line, filing for bankruptcy may be best done with the support and guidance of an experienced bankruptcy attorney. A lawyer can further explain how the means test will determine eligibility for Chapter 7 or Chapter 13. He or she will answer questions and explain the pros and cons of each option. Although this action may harm a Kentucky homeowner's credit record, it may provide a fresh financial start.

Source: investopedia.com, "What You Need To Know About Bankruptcy", Pooja Dave, Accessed on Nov. 30, 2016

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