Bankruptcy: (And still keep my home!)
If you are reading this page, then we have to assume you have looked at all of your other options, and that this is your last option. Rather than giving you any legal advice at this point, it would be better if you contact a professional in your own neighborhood and have a discussion specific to your needs. There are conditions under Bankruptcy that do let you keep your home, and the bill for it of course.
Knowing why you are facing some form of Foreclosure, or some form of Bankruptcy, will help you determine your best solution. First thing to ask yourselves is, "Do we want to keep our home, or is getting rid of the debt more important to us?"
Medical expenses are at the root of over 60% of the Bankruptcies in America today. Furthermore, over three quarters of those families had insurance coverage. Just the 20% co-pay can add up to more than most of us realize. Consider that a major injury can cost hundreds of thousands of dollars to treat; and if you have to pay $50 thousand to $100 thousand or more out of pocket, then your home equity or retirement fund or the kid's college fund in addition to your emergency and vacation funds become history.
If the bills are overwhelming, (you may have lost your job,) and if the mortgage is only a piece of that problem, then losing the house may be painful, but removing the stress of an impossible mountain of debt may be a greater value. If the difference between your mortgage payment and your expected new rent will make the rest of your lifestyle comfortable, then Deed-In-Lieu of Foreclosure eliminates the specific debt problem. On the other hand, if you need to lose a lot of unsecured debt in addition to the mortgage, then a Bankruptcy may be your best option.
Once you file for Bankruptcy, all of your creditors are required by law to stop attempting to collect or harass you by phone or mail, and any Foreclosure action stops immediately. But you will be required to go through credit counseling, and you do have to qualify under the relatively new (tighter) rules. Your credit will take a nasty hit, and the mark will stay on your credit report for ten years, but with a lower cost of living you can rebuild in as few as a two to three years if you live conservatively for a while. A Foreclosure in the same scenario would still leave you with the other mountain of debt plus a seven year hit on your credit score with no funds to recover with. A Short Sale will do the same thing without the seven year hit.
Chapter 7 Bankruptcy does offer a chance of keeping the house depending on its value, your equity, your unsecured debt, and if you have the option to sign a Reaffirmation Agreement; but you should expect to lose the house. The whole process feels rather instant as the court's discharge order comes within a few months, usually around four, from the date you file. All that said, if you can qualify for a Chapter 7 Bankruptcy, and the other options are either impossible or not optimum for your circumstances, then this is your chance to start over.
If keeping the home is important, you don't qualify for Chapter 7, and Bankruptcy is still on your plate, then Chapter 13 may be what you need. All of your creditors will still have to leave you alone during the process which will take three to five years. Under Chapter 13 even if your remaining equity is worth more than the $125 thousand homestead exemption, (or your state exemption if you can't homestead,) you still get to keep the house. You will have to catch up on your back payments while still honoring whatever payoff has been arranged for your other bills. The bright side is that your creditors have to declare your accounts "paid as agreed" to the credit reporting agencies as long as you stick to the reorganized payments. So in spite of the ten year mark on your credit, you are already in the process of repairing it. With regard to credit, Chapter 13 will probably be friendlier than a Foreclosure, but not as friendly as a Short Sale.
On the down side, if you fail to make one of your payments under your Chapter 13 plan, the court can dismiss your case. If that happens, the bank will pick up where it left off on the Foreclosure, and you will still have the Bankruptcy and the Foreclosure on your record. Then you can forget about credit for some time to come as you won't have any left.
Here are a few generalizations:
It is still better to have a moderate credit score with a Bankruptcy than a horrid credit score for getting way behind even though you avoided the Bankruptcy. There is no single solution that fits everyone's situation. The worst thing to do is to wait too long to decide, get forced into your choice, then find yourself stuck with an even worse situation. Bankruptcy isn't always the worst choice.
Please contact a Bankruptcy Attorney to be sure you are making the best choice for your situation as soon as you realize you cannot continue effectively on your own. We are not attorneys, and every state has its own peculiarities; just the same, this is the best information Real Prop Solutions has been able to come up with, and we hope it helps you out.
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If you have not yet exhausted all of your other options, please be sure to consider one of our other solutions before considering Bankruptcy, as some of them may apply to your specific situation.