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In the United States, bankruptcy is categorized into six types under the Bankruptcy Code:
Chapter 7: Basic liquidation for individuals and businesses.
Chapter 9: Municipal bankruptcy.
Chapter 11: Reorganization or rehabilitation, mainly by business debtors.
Chapter 12: Rehabilitation for fishermen and farmers.
Chapter 13: Rehabilitation for individuals with a regular income.
Chapter 15: Ancillary and other international cases.
Foreclosure, on the other hands, refers to an act of legal proceeding which happens when a property owner can’t make principal and interest payment, leading to the property being sold.
Will Bankruptcy Stop A Foreclosure?
The answer is depending on the situation. When you file for bankruptcy, creditors are prohibited to collect the debts you owe. This status is called “automatic stay”. In most situations, you will be able to prolong a foreclosure until you have been discharged of bankruptcy. To be able to keep your home, you still must make a deal with your mortgage company. If you are unable to repay the past due amount, you will still loose your home.
The bottom line is if you think you won’t be able to come up with the money to repay the past due amount, you should NOT file for bankruptcy. Many people who file a bankruptcy wish that they had not. In most cases, they end up in a worse position, because filing bankruptcy will remove your negotiation leverage.
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