Posted on: 20th Mar, 2008 03:11 am
if you're behind on your mortgage, and there aren't any alternatives available to help you get out of the problem, you'll have to decide between foreclosure and bankruptcy chapter 13.
when to file chapter 13 and why
when you have to decide upon foreclosure vs bankruptcy, the first thing to ask yourself is whether you'd like to keep the house. if you're keen on keeping the house, filing for chapter13 makes sense. this helps you to pay off all or part of the mortgage, especially the amount by which you're behind on the loan. the payoff period in chapter 13 is quite short, that is within 3-5 years. however, you'll have to go through credit counseling session within 6 months prior to the date of filing bankruptcy. then you'll have to pass through the means test which confirms whether you're eligible for chapter 13.
more about chapter 13
when you file for chapter 13, you must create a repayment plan and submit it with your petition. the court appointed trustee will then review the repayment plan with your attorney and your creditors. the trustee will then negotiate with your attorney and lender if any alterations to the repayment plan are needed.
once your bankruptcy petition has been filed, your lender is barred from suing you in foreclosure during the bankruptcy proceeding and for at least 30 days after your case has been closed.
the question of foreclosing at the end of the 3-5 year period doesn't arise if you have cleared the debt and are able to continue paying down the outstanding balance. however, you will have to wait 1-2 years after your bankruptcy case has been finalized to try for a refinance.
once your bankruptcy petition has been filed, your lender is barred from suing you in foreclosure during the bankruptcy proceeding and for at least 30 days after your case has been closed.
the question of foreclosing at the end of the 3-5 year period doesn't arise if you have cleared the debt and are able to continue paying down the outstanding balance. however, you will have to wait 1-2 years after your bankruptcy case has been finalized to try for a refinance.
foreclosure vs bankruptcy chapter 13
chapter 13 shows you've tried to clear debts instead of avoiding them, and this has a more positive impact on your credit report than foreclosure does. however, if you fail to reorganize your debts and catch up with the payments, the bank is likely to foreclose after your bankruptcy, and then you'll have both bankruptcy and foreclosure on your credit. so, you shouldn't miss any payments under the chapter 13 plan or the court will dismiss your case and then you'll have no option but to go through a foreclosure.
another positive aspect of chapter 13 is that it helps you keep your home. but when you end up in foreclosure, you may lose the house and if the house doesn't sell for the total amount of the loan, the lender will file a deficiency judgment. this will be reported on your credit report and is likely to affect your credit.
there are tax issues involved with deficiencies. if the lender forgives the deficiency you will have to report the forgiven amount on your federal income taxes. however, even though you report that the deficiency was forgiven, does not mean you will have to pay taxes on it. as of 2009, the irs does not require you to pay income tax on money forgiven due to a foreclosure.
another positive aspect of chapter 13 is that it helps you keep your home. but when you end up in foreclosure, you may lose the house and if the house doesn't sell for the total amount of the loan, the lender will file a deficiency judgment. this will be reported on your credit report and is likely to affect your credit.
there are tax issues involved with deficiencies. if the lender forgives the deficiency you will have to report the forgiven amount on your federal income taxes. however, even though you report that the deficiency was forgiven, does not mean you will have to pay taxes on it. as of 2009, the irs does not require you to pay income tax on money forgiven due to a foreclosure.
credit effects - foreclosure vs bankruptcy
once you file bankruptcy, the creditor/lender can no longer sue you to collect on a debt until the it has been discharged. once it has been discharged, you can rebuild your credit in 2 years. by the time you get served with the summons for foreclosure, your credit score has already taken a hit. by the time your lender takes possession of your home after the sheriff's sale, you will be facing at least another 5 years of rebuilding your credit.
bankruptcy stays on your report for 7 years, but it doesn't affect your credit rating after the initial hit. the best thing is, since you get an automatic stay from collection activities after you file, your credit score will freeze until the bankruptcy process is complete. so, it's better to have a 650 score with bankruptcy instead of a 480 score and a foreclosure.
bankruptcy is an option that will help you to avoid foreclosure. but when it comes to deciding on foreclosure vs bankruptcy, you have to decide which option will work better in your particular situation. so, the best thing to do is to contact your lender and start to negotiate a loan modification as soon as you realize you cannot afford your current mortgage payments any longer.
bankruptcy stays on your report for 7 years, but it doesn't affect your credit rating after the initial hit. the best thing is, since you get an automatic stay from collection activities after you file, your credit score will freeze until the bankruptcy process is complete. so, it's better to have a 650 score with bankruptcy instead of a 480 score and a foreclosure.
bankruptcy is an option that will help you to avoid foreclosure. but when it comes to deciding on foreclosure vs bankruptcy, you have to decide which option will work better in your particular situation. so, the best thing to do is to contact your lender and start to negotiate a loan modification as soon as you realize you cannot afford your current mortgage payments any longer.
related forum discussions
It depends upon the discharge of your bankruptcy. If 2 years have passed since your bankruptcy was discharged, then you can apply for a FHA loan. If you want a conventional loan, then you'll have to wait for 4 years.
If the mortgage company gets a Notice of Default judgement can I still go bankrupt after that to stop foreclosure? :cry:
Hi Katlyncutie,
Yes, you can still file bankruptcy to stop foreclosure. However, it would be better if you could speak to the lender and check out the option of deed in lieu of foreclosure. To know more about deed in lieu, check out the following link:
http://www.mortgagefit.com/deed-lieu.html
Yes, you can still file bankruptcy to stop foreclosure. However, it would be better if you could speak to the lender and check out the option of deed in lieu of foreclosure. To know more about deed in lieu, check out the following link:
http://www.mortgagefit.com/deed-lieu.html
Can you file for foreclosure or bankruptcy if your savings and income does not show insuffient cash flow? Does the lender or court require you to withdrawal all your savings and forfeit your assets? Will they hunt us down if we have lots of money in our bank accounts, paid-off luxury cars but chooses to walk away from the house due to personal choice?
in such critical bankrupt condition can we still take legal action against the bank........
welcome,
to fevadiva,
before filing bankruptcy, you will have to pass the means test. if you can qualify the means test, then you'll be able to file chapter 7 bankruptcy. if not then you may be able to file chapter 13 bankruptcy. if you walkaway from the property, then the lender will foreclose it and sell off the property. if you cannot pay the deficient amount resulting from the sale of the property, then the lender may garnish your bank account or place lien on other properties.
to ranalinkbuilder,
yes, you can take legal actions against the bank if you feel that the bank has done anything wrong with you.
to fevadiva,
before filing bankruptcy, you will have to pass the means test. if you can qualify the means test, then you'll be able to file chapter 7 bankruptcy. if not then you may be able to file chapter 13 bankruptcy. if you walkaway from the property, then the lender will foreclose it and sell off the property. if you cannot pay the deficient amount resulting from the sale of the property, then the lender may garnish your bank account or place lien on other properties.
to ranalinkbuilder,
yes, you can take legal actions against the bank if you feel that the bank has done anything wrong with you.
Hi,
Around 30% of the properties in foreclosure were reported as non-owner occupied. This means that the renters were probably displaced in the process, regardless of whether or not they paid on time.
Around 30% of the properties in foreclosure were reported as non-owner occupied. This means that the renters were probably displaced in the process, regardless of whether or not they paid on time.
When we refinanced our home in 2003 it was appraised at $264,000. Today the SEV is $108,000. Our house payments are VERY high because of taxes on a lakefront house and we are paying interest only. Here's where it gets tricking. Because of health reasons, we took all of our personal investment monies (which was losing thousands every month) and paid cash for a membership in a condo association. They call it a membership because there are no deeds or titles to the actual living spaces but we live in a 2 bedroom condo with a one car garage. We kept the lake house as our primary home because of the taxes. We have had the home on the market since Sept 08 with NO luck at all, not even one single offer. Now we want to "give it back" to the bank. We have talked to an attorney and a debt counselor and both have basically said Chapter 13 Bankruptcy is not a good choice for us (our total "other" debt is about $21,000 this includes car and credit cards). Our problem is we have basically moved out of the primary home to be closer to my work during the winter....we would consider partially moving back to the lake house for the summer but it would be a lot of work and neither of us is young any longer (mid-fifties). Can we just quit paying and admit to the bank that we have another place to live? Do we move back to the lake house and then let the bank foreclose on it? Will we have to pay the difference from what we owe and what the bank can ever get out of it? We're very confused about what to do. We don't mind the fact that our credit will not be great as we can probably pay cash for most everything once we get out of the $1,640 a month mortgage payment for a house we no longer live in. Thanks.
Hi bashoreda,
Rather than letting the lender foreclose the property, it would be better if you could apply for a short sale or a deed in lieu. However, you should note that the lender will accept your request only if you are delinquent on your payments.
In your situation, I feel deed in lieu will be the best option. Though it will lower your credit score by 250 points, you will not be liable to pay the deficient amount.
Rather than letting the lender foreclose the property, it would be better if you could apply for a short sale or a deed in lieu. However, you should note that the lender will accept your request only if you are delinquent on your payments.
In your situation, I feel deed in lieu will be the best option. Though it will lower your credit score by 250 points, you will not be liable to pay the deficient amount.
My parents own two homes. They paid in full for the second home, though some of the money is financed through the first home. The first home has lost substantial value and they may foreclose this year. Will transfering the deed of the second home to my name help "protect" the second home while they willingly lose the first home?
I filed bankrupcy 5yrs ago. I,m having troubles paying my house. Can i file bankrupcy against my house now :(
Hi!
Welcome to forums!
To Ponderance,
Transferring the property now just to save it from the lender may be considered as a fraudulent activity. You can suggest your parents to go for a deed in lieu. If the lender accepts their offer, then they will not be liable to pay the deficient amount. However, your parents' credit score will get lowered by 250 points.
To Guest,
What type of bankruptcy did you file - Chapter 13 or Chapter 7?
Sussane
Welcome to forums!
To Ponderance,
Transferring the property now just to save it from the lender may be considered as a fraudulent activity. You can suggest your parents to go for a deed in lieu. If the lender accepts their offer, then they will not be liable to pay the deficient amount. However, your parents' credit score will get lowered by 250 points.
To Guest,
What type of bankruptcy did you file - Chapter 13 or Chapter 7?
Sussane
i suspect that the transfer of the property in Ponderance's situation may be less difficult than you noted, sussane. that's not to say that it could be construed as fraudulent. however, the foreclosure is not going to be on that second home property, but on the primary residence.
i doubt the lender would attempt to take action against that home to begin with, but i think the transfer from parents to son would not lead to any legal action. check with a lawyer, Ponderance, but my guess is that it will work out fine for you.
i doubt the lender would attempt to take action against that home to begin with, but i think the transfer from parents to son would not lead to any legal action. check with a lawyer, Ponderance, but my guess is that it will work out fine for you.
My husband and I are in the process of filing Chapter 7. We are also 3 months behind on mortgage. We were working with our mortgage company (US Bank) for a loan modification. They wanted to raise our house payment $300 a month to pay off our arrearage. This isn't possible for us. Is our home included in the Chapter 7? Will our home be foreclosed anyhow and will we be responsible for the deficiency amount (I'm sure there will be one!) after the Sheriff Sale? Any advice/knowledge would be greatly appreciated! Btw, we live in Michigan.
Hi Marilyn,
Yes, you can include your house in Chapter 7 bankruptcy. Your mortgage will be discharged. Once you file bankruptcy, there will be an automatic stay and your lender will not be able to foreclose the property. After the bankruptcy discharge, you can reaffirm the mortgage and start paying it off. This will help you in saving your property and improving your credit.
Thanks
Yes, you can include your house in Chapter 7 bankruptcy. Your mortgage will be discharged. Once you file bankruptcy, there will be an automatic stay and your lender will not be able to foreclose the property. After the bankruptcy discharge, you can reaffirm the mortgage and start paying it off. This will help you in saving your property and improving your credit.
Thanks