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How bankruptcy can stave off a zombie attack

Michigan readers may have heard news coverage of the recent rash of zombie attacks. Unlike the flesh-eating undead we all know and love from movies and comic books, these types of zombies offer up a real and present danger. 'Zombie' foreclosures are sweeping the nation, and homeowners who are in financial distress and considering bankruptcy should be aware of the risks associated with becoming the victim of this type of foreclosure.

A zombie foreclosure is one in which the homeowner believes that their mortgage obligation is dead and gone, but in fact that debt lingers on without their knowledge. Typically, a homeowner who has entered the foreclosure process will receive a notice to vacate the home in advance of a foreclosure sale. The family packs up and moves on, assuming that the home will be sold and that they will be contacted by the bank concerning any remaining balance due.

However, the banks are still drowning in a sea of foreclosures, and in some cases these homes sit vacant for years following the beginning of the process. Homeowners across the country are finding that they are still the technical owners of the properties they walked away from, and are still on the hook for property taxes, homeowner's association fees and other expenses related to a home they no longer live in. The bills can add up, leaving many in more serious financial strain than when the foreclosure process began.

In many cases of zombie foreclosure, the homeowner would have been better off to file Chapter 13 bankruptcy and remain in their home. Chapter 13 allows a borrower to restructure their debt and keep secured property such as real estate. While each case is unique, many Michigan families can benefit from the discharge of debt and chance to rebalance their obligations that Chapter 13 affords, while continuing to live in what, for many, is their largest investment.

Source: CNN Money, "Zombie foreclosures: Borrowers hit with debts that won't die," Les Christie, Feb. 22, 2013

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