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
hey,
have you consulted with the lender as larry has suggested. consult with the lender and if you can sell the property then you can request the lender for deed in lieu of foreclosure. if he accepts the deed in lieu then you will need not to pay the difference that you owe to the lender and the sale price.
let me know if you have any more questions.
have you consulted with the lender as larry has suggested. consult with the lender and if you can sell the property then you can request the lender for deed in lieu of foreclosure. if he accepts the deed in lieu then you will need not to pay the difference that you owe to the lender and the sale price.
let me know if you have any more questions.
That sounds like a good option. I will have to see. Who do we have to talk to about this? You are saying that if we sell the house for a mere 60,000 the 29,000 that is not covered would be forgiven?
Also, we would then have to pay a realtor to sell the house? I don't believe we could cover this cost.
Also, we would then have to pay a realtor to sell the house? I don't believe we could cover this cost.
Hi Guest,
I just read your post about your unfortunate situation. It would be good to speak with the lender about a short sale. Below I will explain the difference between a deed-in-lieu and short sale.
Short Sale: A “short sale†is a sale of the property for less than the total amount owed on the mortgage. If the home owner owes more on their property than it is worth, an investor (we can arrange you with an ethical investor) may be able to convince the mortgage company to accept a short sale. Most lenders would rather have the majority of their money back than the hassle of a foreclosure, legal fees, renovation, and marketing costs associated with the reselling of the property.
Deed-in-Lieu: A Deed in Lieu of foreclosure (DIL) is a disposition option in which a mortgagor (home owner) voluntarily deeds the property in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from home owners who can financially make their mortgage payments
Since you will be unable to continue making payments the short sale would probably be the best option because it would allow you to sell the home cheaper than what it is worth and hopefully a “bargain†shopper would notice and purchase the house.
With regards to your credit I would not worry because your credit can begin being restored and soon as this process is behind you. Generally, it takes about one year to restore your credit with a “credible†credit restoration company.
With this option you should be able to avoid filing BK. I say this because it sounds like the mortgage on this home is the only thing that is draining your cash. If you get rid of this mortgage will you be able to pay down your other debts
I just read your post about your unfortunate situation. It would be good to speak with the lender about a short sale. Below I will explain the difference between a deed-in-lieu and short sale.
Short Sale: A “short sale†is a sale of the property for less than the total amount owed on the mortgage. If the home owner owes more on their property than it is worth, an investor (we can arrange you with an ethical investor) may be able to convince the mortgage company to accept a short sale. Most lenders would rather have the majority of their money back than the hassle of a foreclosure, legal fees, renovation, and marketing costs associated with the reselling of the property.
Deed-in-Lieu: A Deed in Lieu of foreclosure (DIL) is a disposition option in which a mortgagor (home owner) voluntarily deeds the property in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from home owners who can financially make their mortgage payments
Since you will be unable to continue making payments the short sale would probably be the best option because it would allow you to sell the home cheaper than what it is worth and hopefully a “bargain†shopper would notice and purchase the house.
With regards to your credit I would not worry because your credit can begin being restored and soon as this process is behind you. Generally, it takes about one year to restore your credit with a “credible†credit restoration company.
With this option you should be able to avoid filing BK. I say this because it sounds like the mortgage on this home is the only thing that is draining your cash. If you get rid of this mortgage will you be able to pay down your other debts
I am not even sure that we can make the payment this month and then to add to that I am not sure that we can afford to pay an attorney to start the process yet either. What happens if we do default on a payment prior to bankruptcy filing?
How do they run a means test? What kinds of things will they consider? do they consider the total of both of the house payments in this? What about alotting for food and stuff of that nature. In my family of 5 we typically spend at least $500 a month on food. I am wondering if this is too high.
If we allow them to foreclose instead of declaring bankruptcy, then they can sue us for the difference, and then may be uneligible for bankruptcy in regards to the means test right?
How do they run a means test? What kinds of things will they consider? do they consider the total of both of the house payments in this? What about alotting for food and stuff of that nature. In my family of 5 we typically spend at least $500 a month on food. I am wondering if this is too high.
If we allow them to foreclose instead of declaring bankruptcy, then they can sue us for the difference, and then may be uneligible for bankruptcy in regards to the means test right?
Hey,
You have not yet informed us whether you have consulted with your mortgage company or not? See they can avoid you. But you need to try again and again. I think deed in lieu will be a good option for you. If the mortgage company accepts the deed in lieu then they will not come after you for the deficiency judgment. But if they foreclose then they will surely claim the deficiency judgment.
You have not yet informed us whether you have consulted with your mortgage company or not? See they can avoid you. But you need to try again and again. I think deed in lieu will be a good option for you. If the mortgage company accepts the deed in lieu then they will not come after you for the deficiency judgment. But if they foreclose then they will surely claim the deficiency judgment.
BK AFTER BEING SCREWED Niccs is right you need to contact your mortgage company. If you are afraid visit home-buddies.com you will find a "FREE" step by step guide as to how to deal with you lender.
Do not be afraid to contact them they will help.
Who is your lender?
Do not be afraid to contact them they will help.
Who is your lender?
Chase. They wouldn't even let us defer one payment.
Have you missed a payment?
never
Very good this helps me better understand how Chase will view your case.
Since, you have not missed a payment they are not looking at other options for you yet. That is why when you ask them to defer a payment they say no. They are only trying to keep you paying as long as they can. Once you have missed a payment or two then they start to consider other option which I know sounds weird but, that is how Chase works.
If I'm correct you do not want to keep the house is that right?
If you do not then you probably should look at a short sale because given the condition of the house the lender will probably want to get rid of the house via a short sale. More than likely they will not want to do a DIL because they would then be stuck with a house they know they cannot sell. With a short sale someone could by the house on the cheap knowing it needs repairs. This would solve the lender and your problem. Did you have a chance to look at the step-by-step on home-buddies.com website it will help you.
Now if you want to keep the house to save your credit we will need to take a different route.
Don't worry I'm here to help and we will get through this together. :D
Since, you have not missed a payment they are not looking at other options for you yet. That is why when you ask them to defer a payment they say no. They are only trying to keep you paying as long as they can. Once you have missed a payment or two then they start to consider other option which I know sounds weird but, that is how Chase works.
If I'm correct you do not want to keep the house is that right?
If you do not then you probably should look at a short sale because given the condition of the house the lender will probably want to get rid of the house via a short sale. More than likely they will not want to do a DIL because they would then be stuck with a house they know they cannot sell. With a short sale someone could by the house on the cheap knowing it needs repairs. This would solve the lender and your problem. Did you have a chance to look at the step-by-step on home-buddies.com website it will help you.
Now if you want to keep the house to save your credit we will need to take a different route.
Don't worry I'm here to help and we will get through this together. :D
Welcome Guest.
As you don't want the property or cannot afford the mortgage payments, I feel the best thing is short sale. It will not affect you credit much. But you will have to pay the deficiency amount if the mortgage company doesnt forgive the deficiency amount. You can get approved for a mortgage loan even after short sale but it will depend upon your affordability.
Let me know if you have any further queries.
As you don't want the property or cannot afford the mortgage payments, I feel the best thing is short sale. It will not affect you credit much. But you will have to pay the deficiency amount if the mortgage company doesnt forgive the deficiency amount. You can get approved for a mortgage loan even after short sale but it will depend upon your affordability.
Let me know if you have any further queries.
if i go to foreclosure... I canot afford my mortgage anymore and I dont really want to keep the house...How bad can the situation get...I know this will affect my credit very badly, however will it also affect my wifes credit eventhough the mortgage is only under my name? And is there any hope in re-building my credit after foreclosure? I have always maintained a fico of 700 or higher.. I live in the state of Arizona
Welcome Azman.
Your wife's credit will not be affected as she's not on the loan. And yes, you can rebuild credit after foreclosure. Must say you've ad a great credit score.
Regarding how to rebuild credit, please take a look at the credit repair section .
Thanks.
Your wife's credit will not be affected as she's not on the loan. And yes, you can rebuild credit after foreclosure. Must say you've ad a great credit score.
Regarding how to rebuild credit, please take a look at the credit repair section .
Thanks.
Can a mortgage company proceed in foreclosure proceedings after someone has filed bankruptcy, even if the debtor says they'll turn over the house as part of the bankruptcy? How should this be noted on the debtor's credit report?