When facing foreclosure, many people are unsure of what to do, where to turn and what options may be available to them. It is important to note that every foreclosure case is different and it is important to discuss your case with an attorney in order to be sure you know all of your options.
  If you want to save your home, you can file a chapter 13 bankruptcy. A chapter 13 bankruptcy stops any active collection against the person declaring bankruptcy. A chapter 13 is a three or five year plan that results in the restructuring of your debts. Depending on a person’s debts, assets and income, some or even all of their unsecured debts can be eliminated and they can catch up on any of their secured debts. An unsecured debt is generally described as a debt not attached to collateral, for example medical bills and credit card debts. Secured debts are those debts that retained an interest in or attached to a particular piece of property, like a home or vehicle. A chapter 13 bankruptcy provides the opportunity to the borrower to either, request a court monitored mortgage modification, or to cure their missed payments and make any current payments over three or five years through a structured bankruptcy plan.
  It is important to be realistic when you are facing a foreclosure or considering bankruptcy. Just because you want to keep your house doesn’t mean it is always feasible. It is important to realize that you will have to begin making payments again. If requesting a modification of the mortgage, in the bankruptcy you must pay 31% of your gross (before taxes and deductions) income to the mortgage company through your bankruptcy. You are required to make this payment to show that you are entering into this modification in good faith. If you are planning on catching up your payments, you have to have the income in order to support making those payment and keeping up with your other everyday expenses.
  If you don’t want to save your home and are ready to move on with the next step in your life, you also have options. You can work out a short sale with the lender or even negotiate a sale date with some money to move out of the property. The biggest concern when trying to walk away from a home is that even after the home is sold or you’ve made a deal with the bank, you could be facing a deficiency.
  A deficiency occurs when a home is sold for less than the amount left on the mortgage. When purchasing a home, the lender typically requires a borrower to sign both a note and a mortgage. The mortgage ties the loan to the property, giving the bank the ability to foreclose if certain obligations aren’t met, like not paying the agreed monthly amount. The note portion of the loan ties the obligation to the borrower personally. Once a home is sold and a deficiency is realized by the loan holder, the loan holder can sue the borrower for the remaining amount that was loaned. This deficiency is now considered an unsecured debt, but this amount is often impossible to repay. Some lenders do write off the debt, but then you could face paying taxes on that amount as income. You can consider filing either a chapter 7 or a chapter 13 bankruptcy depending on your assets and income and receive a discharge of some or even all of this debt. If you do not qualify for a chapter 7 case, a chapter 13 would allow you to pay according to your income or assets (whichever is higher) a specific amount each month to pay to your unsecured creditors. After your chapter 13 bankruptcy is over, any unsecured debts that are unpaid are discharged and you cannot face any tax liability.
If you are facing foreclosure or just have questions about bankruptcy or foreclosure, please call us today for a free consultation.