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Advice if Upside Down on Your Home and Considering Bankruptcy - The Bills.com Blog
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Advice if Upside Down on Your Home and Considering Bankruptcy
Tuesday, Apr 14, 2009
Question: My house is upside down by $200K. I have a first and second with the same lender (Not purchase money)I am over my head in CC debt and late. Can I file bankruptcy and get rid of the recourse second and CC debt and keep my first loan and the home if I am current on the first mortgage Thanks, Randy
Answer: Generally speaking, you cannot include a secured debt, such as your second mortgage, to be discharged in bankruptcy filing if you intend to keep the property. Most secured lenders would choose to foreclose upon any property included in a bankruptcy case. The lender would then auction the property and apply the sale proceeds to the loan balance; this balance, called a “deficiency balance” is usually dischargeable in bankruptcy. In fact, even if the foreclosure auction does not net sufficient funds to cover the first mortgage, which it may not given how much more you owe on the home that it is worth, any mortgage debt should be dischargeable in bankruptcy after foreclosure, as the debts will no longer be secured by any asset. Since you are $200,000 upside-down on your home, allowing the home to go into foreclosure and then including the resulting deficiency in a bankruptcy filing may be the most sensible option available. I strongly encourage you to discuss these
issues with an attorney in your state to determine if bankruptcy is a viable option in your circumstances. To read more about foreclosure, you should visit the Bills.com foreclosure page at http://www.bills.com/foreclosure/.
As a response to the recent downturn in the U.S. economy and housing market, the federal government has been pressuring lenders to work with consumers who are struggling with their mortgage payments, and is working on plans to provide incentives to those lenders who are willing to offer concessions to borrowers. I strongly encourage you to contact your lender to discuss what programs the lender offers to write down borrowers’ mortgage balances to make the principal debt more in line with the actual value of the home. While not all lenders are offering this type of assistance to borrowers, many are offering reduced interest, deferred rate adjustment, etc.; it certainly does not hurt to call and ask what options
As a response to the recent downturn in the U.S. economy and housing market, the federal government has been pressuring lenders to work with consumers who are struggling with their mortgage payments, and is working on plans to provide incentives to those lenders who are willing to offer concessions to borrowers. I strongly encourage you to contact your lender to discuss what programs the lender offers to write down borrowers’ mortgage balances to make the principal debt more in line with the actual value of the home. While not all lenders are offering this type of assistance to borrowers, many are offering reduced interest, deferred rate adjustment, etc.; it certainly does not hurt to call and ask what options
are available.
As I stated, I think it unlikely that you will be able to include your second mortgage in a bankruptcy discharge without resulting in the foreclosure of your property. You may be able to work out a plan with the lender to keep you home and file for bankruptcy on your other, unsecured debts. However, given the amount of money you owe on this property compared to its value, the wiser choice may be to cut your losses now and surrender the property. Because I am not an attorney and do now know all of the details of your financial situation, I strongly encourage you to consult with an experienced attorney in your state who can review your overall financial situation and help you make an informed decision about the best way to proceed. I wish you the best of luck in resolving these debts, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
As I stated, I think it unlikely that you will be able to include your second mortgage in a bankruptcy discharge without resulting in the foreclosure of your property. You may be able to work out a plan with the lender to keep you home and file for bankruptcy on your other, unsecured debts. However, given the amount of money you owe on this property compared to its value, the wiser choice may be to cut your losses now and surrender the property. Because I am not an attorney and do now know all of the details of your financial situation, I strongly encourage you to consult with an experienced attorney in your state who can review your overall financial situation and help you make an informed decision about the best way to proceed. I wish you the best of luck in resolving these debts, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
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