What Happens to Your Home Mortgage in Bankruptcy?
One of the more interesting issues to consider when you are in financial straits and planning to declare bankruptcy is what happens to your mortgage when you file. There are many different scenarios. In some cases, it is possible to save your home and protect it — as long as you will be able to afford to make your mortgage payments after the rest of your debts have been discharged. If you can’t afford the payments, you can actually walk away clear, as long as you have not affirmed your debt. First and second mortgages (but not liens) will be cleared as part of your bankruptcy proceedings.
You should realize, though, that any homeowners association fees accumulated after you file will be your responsibility. It’s a bit of a quirky rule. All of what you owe prior to filing can be cleared, but fees that pile up after you have filed need to be paid by you.
Trying to avoid bankruptcy
It is better, though, if you can avoid bankruptcy. Some people use bankruptcy as a method of postponing foreclosure. However, this can backfire, and may not be the best option. Instead, carefully review your options and see whether you can get a loan modification or sell your home in a short sale. (Be careful with a short sale; you may end up signing an agreement to repay a junior lien — and you don’t want to do that.)
In the end, bankruptcy should be your option of last resort. And before you file, make sure you consult with a knowledgeable attorney. You want to arrange things so that you get the maximum protection, and agree as few obligations as possible, if you are truly in need of bankruptcy to get you back on your feet. And once you are through with the process, it is vital that you proceed carefully and begin rebuilding your credit.
October 5th, 2009 at 11:02 am
[…] It is true that there are many loan modification opportunities, as well as the ability to refinance if you are concerned about losing your home to foreclosure. However, in some cases, you might not qualify for these types of programs. This can be discouraging, since it may seem that your only way out is bankruptcy. […]
October 13th, 2009 at 11:46 am
[…] of our economic activity. CIT provides the financing for about one million small businesses. A bankruptcy for CIT is likely to upset the workings of many small businesses, and have a profound effect on the […]