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
I am 2 almost 3 months behind on my mortgage payments. i also have a car and other loans and credit cards. all of which are falling behind. im trying to pay them all , but i cant seem to make enough money to pay them all when they should be paid. so everything seems to keep falling behind. so my credit is taking a really hard hit.
hi shelby,
you can file for chapter 13 bankruptcy. this will help you in discharging the credit card debts. apart from this, you will also be able to save your property. once your bankruptcy is discharged, the lender would give you an alternative payment plan depending upon your financial situation. if you make payments according to that payment plan, your property will be saved.
you can file for chapter 13 bankruptcy. this will help you in discharging the credit card debts. apart from this, you will also be able to save your property. once your bankruptcy is discharged, the lender would give you an alternative payment plan depending upon your financial situation. if you make payments according to that payment plan, your property will be saved.
I have maintianed my house payments on time by having the payments automatically deducted and everything else is current. Should I file for bankruptcy?
I had difficulties paying my timeshare and other credit card debt since the mortgage company changed the monthly payments for my impound account-I was hit an additional 500.00 per month. Everything went behind and I scrambled to catch up. I tried to keep up with the timeshare account but then maintenance increased and that was when I called the timeshare company and I began to look for ways to sell. Selling was not an option because every listing company wanted monthly fees and I still had to pay the monthly maintenance.
Now there is the current crisis of credit card companies lowering my credit and closing accounts even though I caught up and have paid on time and paid the balances lower.
The timeshare went to collections after I did not agree to the lenders terms - 200.00 less per month for 60 days only. I feel the timeshare company lied - they told me when I purchased my timeshare that it was easy to sell, it is not. My payments went from 950.00 per month to 1300.00 per month! The total due is 55,350.00! How can I get out of this mess?
I am a teacher with a good job, raising two kids, and I purchased a home 2 years ago. Two years ago my credit was good. Now my home is worth half of what I purchased it for and because of a mistake the lender made my monthly house payment jumped 500.00 - at the same time the timeshare payments escalated.
I had difficulties paying my timeshare and other credit card debt since the mortgage company changed the monthly payments for my impound account-I was hit an additional 500.00 per month. Everything went behind and I scrambled to catch up. I tried to keep up with the timeshare account but then maintenance increased and that was when I called the timeshare company and I began to look for ways to sell. Selling was not an option because every listing company wanted monthly fees and I still had to pay the monthly maintenance.
Now there is the current crisis of credit card companies lowering my credit and closing accounts even though I caught up and have paid on time and paid the balances lower.
The timeshare went to collections after I did not agree to the lenders terms - 200.00 less per month for 60 days only. I feel the timeshare company lied - they told me when I purchased my timeshare that it was easy to sell, it is not. My payments went from 950.00 per month to 1300.00 per month! The total due is 55,350.00! How can I get out of this mess?
I am a teacher with a good job, raising two kids, and I purchased a home 2 years ago. Two years ago my credit was good. Now my home is worth half of what I purchased it for and because of a mistake the lender made my monthly house payment jumped 500.00 - at the same time the timeshare payments escalated.
Hi aztec!
Welcome to forums!
You can contact your timeshare company and ask them to withdraw the account from collections. Then you can negotiate with them for a loan modification. This will help you in saving the property from a foreclosure sale. It will also save your credit.
If you are planning to sell off the timeshare, then you can apply for a short sale or deed in lieu with your lender.
Feel free to ask if you have further queries.
Sussane
Welcome to forums!
You can contact your timeshare company and ask them to withdraw the account from collections. Then you can negotiate with them for a loan modification. This will help you in saving the property from a foreclosure sale. It will also save your credit.
If you are planning to sell off the timeshare, then you can apply for a short sale or deed in lieu with your lender.
Feel free to ask if you have further queries.
Sussane
MY QUESTION IS, CAN YOU FILE CHAPTER 13 ON JUST YOUR MORTGAGE AND NOT THE REST OF YOUR DEBT? OUR MORRTGAGE IS THE ONLY THING WE ARE BEHIND ON. THANKS
hi cindy,
as you are behind on your mortgage payments only, you can file chapter 13 bankruptcy for the mortgage. you do not need to include the other debts. you can consult your bankruptcy attorney and he will help you with the right suggestion.
thanks
as you are behind on your mortgage payments only, you can file chapter 13 bankruptcy for the mortgage. you do not need to include the other debts. you can consult your bankruptcy attorney and he will help you with the right suggestion.
thanks
bankruptcy or foreclosure choosing between bankruptcy and foreclosure is like choosing how you would like to die – use an aspirin overdose or just get shot. you must realize that any bankruptcy event will linger on your credit report for more than 7 years. while chapter 7 bankruptcy is strictly for unsecured loans, the way it links to your home loan is when you might be in a position to pay off your mortgage when you file bankruptcy with your unsecured loans like cards and bank overdraft. chapter 13 bankruptcy is another option you might like to consider; the big brother of your chapter 7 version.
i filed chapter 7 bankrupty it will be 2 years in novomber that it will be discharge. i filed my house in the bankrupty. how long before i can purchase another house?
Hi survior,
After November, you can try out for FHA loans to purchase a property of your own. If you want to go for a conventional loan, then you would have to wait for 4 years after your bankruptcy discharge.
Thanks
After November, you can try out for FHA loans to purchase a property of your own. If you want to go for a conventional loan, then you would have to wait for 4 years after your bankruptcy discharge.
Thanks
my property is in the process of foreclosure but i contacted an attorney to answer the summon few month ago. so far my case still pending for what i could see. i am working with a non profit organization to get a new loan but i do not have an answer yet. my question is there a lender that will refinance a property even if the property is in the process of foreclosure????? my lender gave me a list of lender and i started calling them one by one. these lenders told me evrything was a lie no one could refi my loan except my own lender. should i file bakcruptcy chapter 7 before sell date?
Hi dar,
It is true that no lender would refinance the property if it's into foreclosure. I would suggest you to speak to your lender and check out whether or not he can give you a loan modification. If the lender accepts it, you won't have to file bankruptcy and you'll also be able to save your property.
Take care.
It is true that no lender would refinance the property if it's into foreclosure. I would suggest you to speak to your lender and check out whether or not he can give you a loan modification. If the lender accepts it, you won't have to file bankruptcy and you'll also be able to save your property.
Take care.
MY WIFE AND I ARE CONSIDERING FILING FOR BANKRUPTCY. WE HAVE ONE HOME WITH TWO MORTGAGES. THE FIRST IS 160K AND THE SECOND IS 70K. HOME VALUES HAVE GONE DOWN SO MUCH THAT THE HOUSE IS NOW WORTH ONLY 185K. WE HAVE UNSECURED DEBT OF 35K AND WE DID AN ON-LINE MEANS TEST. (WE'LL CONSULT AN ATTORNEY, OF COURSE, BUT JUST WANTED TO GET AN IDEA OF WHERE WE STAND.) THE MEANS TEST SAYS WE PASSED AND HAVE DISPOSABLE INCOME OF $95 EACH MONTH, AFTER ALL SECURED AND PRIORITY CLAIMS AND LIVING EXPENSES ARE PAID. WE LIVE IN PA AND ARE ABOVE THE STATE MEDIAN INCOME. WE KEEP READING THAT UNDER CHAPTER 13, UNSECURED CREDITORS ARE TO GET WHAT THEY WOULD HAVE RECEIVED IF THERE WERE A CHAPTER 7 LIQUIDATION. WE DON'T WANT TO LOSE OUR HOME. BOTH MORTGAGES HAVE NEVER BEEN LATE AND WE'RE NOT BEHIND. WE'RE JUST STRUGGLING BECAUSE BOTH OF OUR JOBS HAVE CUT HOURS TO THE POINT WHERE THE CREDIT CARDS AREN'T GETTING PAID THE MINIMUMS, AND THEY REFUSE TO NEGOTIATE ANYTHING THAT WILL HELP US. OUR QUESTION IS, IF WE FILE A CHAPTER 13 REPAYMENT PLAN, WOULD CREDITORS OBJECT TO THE $95/PER MONTH DISPOSABLE INCOME. IT IS OUR BEST EFFORT, IN GOOD FAITH, AND CONSIDERING THERE IS NO EQUITY IN THE HOME, THEY WOULDN'T RECEIVE ANYTHING ANYWAY IF THERE WERE A LIQUIDATION WITH CHAPTER 7. WE REALLY DON'T HAVE ANY OTHER HIGH VALUE ASSETS, A TEN-YEAR OLD TRUCK I OWN WORTH $1900 AND A 3 YEAR OLD PRE-OWNED CAR MY WIFE AND I SHARE. WE PAY $141 ON THE LOAN AND IT IS CURRENT. WE UNDERSTAND THE CONSEQUENCES OF BANKRUPTCY AND ARE WILLING TO ACCEPT THEM. WE TRIED DEBT SETTLEMENT PLANS BUT LITTLE IF ANY HELP. WE TRIED TO NEGOTIATE WITH THE CREDIT CARDS THEMSELVES BUT...WELL, I'M SURE YOU KNOW THE ANSWER TO THAT. WE'RE JUST CONCERNED THAT IF WE FILE, WILL THESE UNSECURED CREDITORS GO POSTAL AND DEMAND THAT THE PLAN NOT BE CONFIRMED. WE'RE JUST NOT SURE OF HOW THEY WOULD REACT. ALL OF OUR FINANCIAL INFO. IS HONEST AND VERIFIABLE. DOES ANYBODY HAVE ANY THOUGHTS TO SHARE WITH US?
Hi MC,
A query similar to yours has been answered in the given link:
http://www.mortgagefit.com/bankruptcy/chapter7-walkaway.html#100450
Please take a look. Hope it helps you.
Take Care.
A query similar to yours has been answered in the given link:
http://www.mortgagefit.com/bankruptcy/chapter7-walkaway.html#100450
Please take a look. Hope it helps you.
Take Care.
Can a person do a short sale if they have filed chapter 13?
Hi rmurphy,
As you have already filed for Chapter 13 bankruptcy, I doubt whether you would be able to go for a short sale or not. You will have to speak to your lender regarding this and check out what he has to say. Generally, in Chapter 13 bankruptcy, the lender will give you a repayment plan to pay off the debts within 3-5 years. Once you pay this off, your bankruptcy is discharged.
As you have already filed for Chapter 13 bankruptcy, I doubt whether you would be able to go for a short sale or not. You will have to speak to your lender regarding this and check out what he has to say. Generally, in Chapter 13 bankruptcy, the lender will give you a repayment plan to pay off the debts within 3-5 years. Once you pay this off, your bankruptcy is discharged.