The Truth About Bankruptcy And Saving Homes
A common misconception that I observe as a consumer bankruptcy attorney in Southwest Florida is that if you are not current on your mortgage when you file bankruptcy, you will lose your home. Quite the contrary. Many people file bankruptcy every day for the sole purpose of saving their homes. Of course, the best way to determine how best bankruptcy can help you is to consult with an experienced attorney, but my goal with this article is to introduce you to some of the many different possibilities and hopefully give you some hope, especially if you feel you’ve exhausted all possibilities and feel like giving up.
1. Bankruptcy can give you the time you need to catch up on missed payments. There are many reasons people fall behind on mortgage payments, and it’s not always because they cannot afford their homes.
One major cause in the past few years has been these trial modification payments that have become so popular. Homeowners are told by their lenders that they need to start making lower monthly payments for a few months (or stop paying altogether) in order to qualify for a permanent modification.
The trouble is, as proven by pure statistics, these trial plans rarely ever result in a permanent modification that is beneficial for the homeowner – or any modification at all. If the modification does not turn out as they had hoped, the homeowner is often left in an impossible position of either catching up on months worth of missed or less-than-full payments all at once in once lump sum (if they could afford to do that, why would they need a modification in the first place?) or face losing their home in foreclosure.
What bankruptcy can do in that situation is provide the homeowner who can still afford their home a payment plan that does not need to be approved by the lender. As long as payments are kept current in the Chapter 13 plan, the lender cannot foreclose. Then, at the end of the plan after all payments have been made as agreed, the loan is brought current.
2. Bankruptcy can get rid of second mortgages and equity lines of credit. If the current market value of your home is less than what you owe on your first mortgage, the second mortgage or equity line can be converted into unsecured debt and the lien stripped off your property.
This can help the homeowner who could still afford their home if only they didn’t have that extra mortgage payment every month. The logic behind this option is that the second mortgage holder would not receive anything if the property were to be sold at a foreclosure sale, so in that sense, the debt is unsecured and should no longer be an encumbrance on that property.
It’s better to let the borrower keep the home that they have worked so hard for than to let someone else buy it at a foreclosure sale for a fraction of what is owed, and the second mortgage holder is no better off.
3. Even if neither of the above options is applicable to a particular homeowner, bankruptcy can still help to make the home more affordable by taking care of any other debts that may be burdening their budget. Money that may have otherwise been needed to make minimum payments on credit cards each month can instead be used to make mortgage payments that have becoming difficult in light of the overall financial picture.
Bankruptcy is all about improving the overall financial situation for your family. Get all the facts so you can truly say you have covered all possible options.
Holly McFall is an Attorney with the Dellutri Law Group, P.A. Ms. McFall counsels individuals who are experiencing debt problems and guides them through the bankruptcy process. She also litigates consumer law issues in the State and Federal Courts.
