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How does filing for bankruptcy impact the family home?

For Escondido residents who are considering filing for bankruptcy, there are often more questions than answers. And those questions can be tough, because many people just don't know a whole lot about the process. All that most people know about filing for bankruptcy is the common, and sometimes misleading, perception that the process wipes out debts while at the same time ruining the filer's credit. There is no doubt that filing for bankruptcy comes with pros and cons to consider, but for most people their primary concern is what will become of the family home.

As a recent article noted, a family home, known legally as "real property," is treated a bit differently in a Chapter 7 bankruptcy than other debts and assets. What a filer is really trying to accomplish in a personal bankruptcy filing is to discharge debt, and a mortgage is often the biggest single debt anyone owes. The difference between discharging a mortgage debt and discharging something like credit card debt is that the mortgage debt is attached to the home - known as "secured debt." So, as the recent article pointed out, the home usually goes into foreclosure.

Chapter 7 bankruptcy is a debt solution that many people avoid thinking about because they don't know if they will be able to recover in the aftermath. Obviously there are serious implications for a person's credit in a bankruptcy filing, but as long as the right financial moves are made after the subsequent fresh start, rebuilding credit is a realistic goal to attain.

The big question, however, is whether or not a bankruptcy filer can ever again apply for a mortgage. The short answer is "yes" - so long as credit is rebuilt and a couple of incident-free years have passed since the bankruptcy filing was completed.

Source:, "Had a bankruptcy? Here's how to get a mortgage," Scott Sheldon, May 7, 2014

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