How Bankruptcy Can Save Your Home From Foreclosure

Well, as most of you may know by now; Washington is too busy bailing out the mortgage companies to help homeowners. Therefore, if you are having trouble making your monthly mortgage payments it is important to know that the existing bankruptcy laws provide several options.  To determine if you can/or should keep you house, follow these steps:

Create a budget:

First, you should total all of your net monthly income (take home pay) for both you and your spouse; be sure to include any rental income you receive. Second, write down all of your household expenses, which include: your mortgage payment, utilities, car payments, food, health care (if not deducted from your paycheck), transportation, insurance, gasoline, child care, child support, and other necessities that you require to meet your basic needs. Do not include payments to unsecured creditors, such as credit cards, medical bills, and personal loans in your budget.

Next, subtract the total amount of your monthly expenses from your family’s net monthly income; you should have an approximate total of your monthly disposable income. If this number is negative (or in the “red”), then it is likely that you cannot afford your mortgage while meeting your basic needs. In other words, you are sacrificing some of your basic needs to pay the mortgage, or you are paying for your basic needs while not making your mortgage payments. If the number is positive, then you can’t make your mortgage payments because of your debt burden.

Ask your mortgage lender about loan modification

If you cannot afford your mortgage payments; then bankruptcy cannot help you save your home. However, many times mortgage lenders will provide their customers an opportunity to lower their monthly mortgage payments by “modifying,” or changing the terms of the loan. These changes typically lower your interest rate, provide graduated repayment options, or extend the term of your loan. At times, mortgage lenders will also allow you to payback all overdue mortgage payments as part of a balloon payment, or permit you to make additional payments to “catch up” on the mortgage. The loan modification requirements vary among lenders and you should contact the “loan modification,” “workout,” or “loss mitigation” department at your mortgage lender.

Consider Chapter 13 Bankruptcy:

If you have sufficient income to pay your mortgage, but you are behind on your mortgage payments then a Chapter 13 Bankruptcy will allow you to “catch up” on your past due mortgage payments over a period of 24 – 60 months. You will be required to pay your regular monthly mortgage payment AND make a monthly payment to the Chapter 13 Trustee. The bankruptcy will stop any foreclosure action and will allow you to remain in your home.  However, you must keep up with your mortgage payments, and your bankruptcy payment.  Your failure to  do so will result in your lender seeking permission from the bankruptcy court to resume foreclosure; or even the dismissal of your bankruptcy case.

The Chapter 7 Bankruptcy Alternative:

If you cannot afford your regular monthly mortgage payment, and you cannot workout an acceptable modification with your lender, a Chapter 7 Bankruptcy will permit you to leave the home while eliminating any financial liability on the mortgage loan. In other words, when the bank eventually forecloses the property you will not be responsible for paying back a deficiency assessment. This deficiency is assessed to you when the foreclosure auction sale price is not sufficient to payoff the mortgage loan in full. A Chapter 7 bankruptcy will permit you to leave the property without any financial liability and provide you with a fresh start.

Contact A Bankruptcy Attorney:

The worst thing you can do is do nothing. While this article is designed to explain your options, it is not legal advice. Everyone’s situation is different, if you have any questions, you should consult with a qualified bankruptcy attorneys toady.  in most cases, the consultation is free, so you have nothing to lose.

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