Facing Foreclosure

BILL'S ANSWER

First off, every foreclosure situation is different, and laws vary from state to state, so you should consult a bankruptcy attorney in your state in order to find out the extent off your liability should your house go into foreclosure.

In many situations, when a home is foreclosed upon, the mortgage lender usually auctions the property at a foreclosure sale, applying whatever amount is received at the sale to the balance owed on the mortgage. If the sale price at auction is not sufficient to cover the mortgage and other secured liens on the property, such as home equity loans, the difference becomes a "deficiency balance." In many - but not all - cases, a deficiency balances can be collected like any other unsecured debt; meaning the creditor may have the right to proceed with collection action against you, and could possibly file a lawsuit against you to collect the debt. Depending on your state’s laws, if a creditor files a lawsuit and obtains a judgment against you, they may be able to garnish your wages and levy your bank accounts. Again, you should consult with an attorney to find out the risks posed by your specific situation.

Typically, the least cumbersome way to resolve a delinquency would be to formulate a firm repayment plan to which you can commit each month, and contact the mortgage holder directly to propose a plan to pay a certain amount each month in addition to your regular payments, slowly bringing your delinquent balance current. For example, if you can commit to increase your monthly mortgage payments by $200 each month, your delinquency (with interest) would be paid off within approximately 13 months. If you contact your lender, explain the financial hardship which led to the delinquency, and commit to paying off the delinquency within a reasonable amount of time, the lender will allow you to continue making your regular payments and not force the property into foreclosure. Also, your lender may be able to lower your interest rate, loan term, etc., to reduce your monthly payments, making repayment more feasible.

Another option to discuss with your lender would be to simply move, or defer, the delinquent payments to the end of the loan schedule. It is less likely that your lender will agree to this arrangement than he would to a plan to repay the delinquency as mentioned above. However, this is something that you may want to mention to your lender, as this type of plan is usually easier to calculate and track. Also, if you cannot afford to increase your monthly payments by a couple hundred of dollars, but are able to commit to making all mortgage payments in a timely manner going forward, you lender may be willing to defer your delinquent payments to assist you in keeping the property.

Another option to consider is filing for Chapter 13 bankruptcy protection as a possible solution to help you keep the home if your lender will not work with you on a voluntary basis. Similar to the deferment option I mentioned previously, a Chapter 13 filing can frequently move a homeowner’s delinquent payments to the end of his mortgage amortization schedule. The benefit of filing bankruptcy is that any changes to your loan schedule would likely be imposed on the lender, so it can be very helpful for consumers whose lenders are unresponsive to the consumers’ efforts to work with their lenders directly.

One other possible way to resolve any deficiency balance resulting from the foreclosure of your property would be to file for Chapter 7 bankruptcy, which could allow a bankruptcy court to discharge your unsecured debts, including any deficiency balance you owe. (Once again, you should talk to an attorney in order to see if you qualify for Chapter 7 filing.) Bankruptcy may also be able to protect your vehicle and any other exempt assets you may own.

I strongly encourage you to consult with an attorney to discuss the possible consequences of foreclosure, deficiency balances, and judgments in your state, and to determine if bankruptcy may help relieve some of your financial woes. To read more about bankruptcy, you can visit the Bills.com bankruptcy page.

To read more about the various possible solutions available to you, I encourage you to visit Bills.com blog articles about stopping foreclosure or bankruptcy and foreclosure.

I also suggest checking out the Restore credit after bankruptcy article and Building credit from scratch article to learn more about ways to you can look to can build/restore your credit after a financial setback.

Good luck as you deal with this very difficult financial situation, and take comfort in the fact that millions of people face bankruptcy every year, and that it is something that you can get past and overcome!

I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

www.bills.com/blog