At Genova & Malin, Attorneys at Law, we are prepared to help you explore all alternatives to bankruptcy available to you, in addition to helping you weigh the pros and cons of filing for bankruptcy. At the same time, we can discuss options with regard to particular concerns such as dealing with mortgage debt and making the right decisions when foreclosure is a real possibility.
When you file bankruptcy, the automatic stay will go into effect immediately. No creditor will be able to attempt to collect debts during this time. In the short term, filing bankruptcy can stop foreclosure at least until your bankruptcy is complete. However, you may determine that you cannot keep up with current mortgage payments, much less deal with past due ones. You may deal with a looming home foreclosure in one of these ways:
» You may decide to seek to obtain a loan modification through the United States Bankruptcy Court’s loss mitigation program
The typical loan modification seeks to recapitalize all pre-filing and post-filing mortgage arrears back into the mortgage, reduce your current interest rate and increase the length of time you were given to pay the mortgage so as to reduce your mortgage payment to an amount that you are able to afford on a monthly basis. This option enables you and your family to reorganize your finances and remain in your home.
» You may agree with the lender to conduct a short sale
In a short sale, you sell the house for whatever the market brings and turn over the proceeds to the lending institution. In some cases, the lending bank will consider the proceeds of a short sale to satisfy the home loan completely — but this is not always the case. Ordinarily, we do not encourage short sales. You will be required to list your home, be prepared for showings, and sell the home yourself or with the help of a real estate agent. Beware of two other risks of this method: (1) The bank may still require you to repay the difference between what the home sells for in a short sale and what the mortgage balance was and (2) If the bank does forgive the part of the loan not covered by the short sale, you may be required to pay income taxes on that portion.
» You may negotiate a deed in lieu of foreclosure option with your bank
This will mean that you sign over the deed to the bank and walk away from the home. We rarely recommend this as an option, for a number of reasons — but it is an option. You may seek a loan modification. This option has worked for quite a few debtors. Getting your application approved can be problematic, however. Some homeowners have been told by their banks to stop making payments for a couple of months in order to qualify to seek a home loan modification — but then another department of the same bank put the homes up for sale and evicted the residents.
» You may decide to let your home go through foreclosure while continuing to live in the house
Eviction may not come right away. Foreclosure sometimes takes a year or two to complete. This option may give you the time that you need to save up first and last months’ rent and prepare to move when necessary.
Meanwhile, filing bankruptcy can eliminate most or all of your other debts. This may allow you to save up money for a rental deposit. When a foreclosure or foreclosure alternative is complete, you can walk away from your home truly ready for a fresh start, with no more mortgage debt.