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
What if you took Chapter 7
Hi howaboutit,
Your query is not clear to me. Can you explain it so that it will help me as well as other members to give you the required suggestions.
Your query is not clear to me. Can you explain it so that it will help me as well as other members to give you the required suggestions.
Chapter 13 is called "debt adjustment". It requires a debtor to file a plan to pay debts from current income. Exemptions also apply in a Chapter 13.
Not especially helpful here.
when I was married we filed chapter 13 bk in 2004, we are divorced and i have recently lost my job. he left me with refinancing the house and now I cant pay for it which is the best for me forclosuer or bk. i have it up for sale but no luck yet. i could care less abou my credit at this point just need to take care of my children
hi howfi!
welcome to forums!
if you don't want to keep the property, then you should contact your lender and apply for a deed in lieu of foreclosure. this will not only help you in paying off the dues but you won't be liable for paying off the deficient balance even.
feel free to ask if you've further queries.
sussane
welcome to forums!
if you don't want to keep the property, then you should contact your lender and apply for a deed in lieu of foreclosure. this will not only help you in paying off the dues but you won't be liable for paying off the deficient balance even.
feel free to ask if you've further queries.
sussane
i´m already 5 months behind my mortgage payments. I´´m currently through the short sale option, however, I´m extremely sad since i want to keep my home so I do not have to move back to my country. Can I stop the short sale process and file for chapter 13? please, what would be best for me? thanks in advance
Foreclosure and bankruptcy,both are depends on their own way...so it's depend on your problem....
Please rearrange the order of your words in that response "Bankrupcyus" or explain what it is you're trying to say...What you've posted has little, if any, relevance to any of the topics on the Forum.
Murky - what you can do depends on what has taken place so far. If you have entered into a contract to sell to someone already, then you'll be held liable for that contract, and bankruptcy isn't likely to forestall that sort of thing. If, on the other hand, you haven't actually gone to contract yet, then I don't see why you couldn't put a stop to the short sale.
It depends - where are you in the process at this time?
Murky - what you can do depends on what has taken place so far. If you have entered into a contract to sell to someone already, then you'll be held liable for that contract, and bankruptcy isn't likely to forestall that sort of thing. If, on the other hand, you haven't actually gone to contract yet, then I don't see why you couldn't put a stop to the short sale.
It depends - where are you in the process at this time?
My home just went to a foreclosure attorney in 1/11. Can I file Chapter 13 to avoid any further foreclosure proceedings and keep my home?
Thank you
Thank you
GC, filing in bankruptcy won't necessarily eliminate a foreclosure proceeding, but it will stall things. You need to speak to a bankruptcy attorney, or to the court itself, to get the particulars on what you can or cannot do.
I live in Wisconsin and got married a little over a year ago. When we got married - my wife has a home in her name and i have a home in my name. my wife can no longer afford her home. If the bank forecloses on her, how does it affect me. He do have a prenuptial agreement.
Hi Guest,
If your name is not mentioned on your wife's mortgage for her home, then the foreclosure won't have a negative affect on you. Your credit scores won't be affected and you won't be liable for paying any deficient balance resulting from the sale of the property.
Thanks
If your name is not mentioned on your wife's mortgage for her home, then the foreclosure won't have a negative affect on you. Your credit scores won't be affected and you won't be liable for paying any deficient balance resulting from the sale of the property.
Thanks
We began a home affordable modification process 9/10, to reduce our mortgage, when we found out we were upside down by almost 2/3. We were over income for most programs, and we did not follow through with all the paperwork in the modification process. We received a denial notice late 2010. We also had to file for bankruptcy 11/09, as my husband was laid-off. Our lawyer entered reaffirm on the house, but we did not sign an agreement and moved out shortly after our court date 6/1/10. My concern is that because the bank would only speak to us about paying the debt, we contacted a friend in the real estate business to contact the bank. Our friend contacted the bank and I believe applied for a deed in lieu of foreclosure to surrender the property. The bank sent us a denial for a Deed in Lieu stating it is because we declined to complete a Short-sale, which we did decline because of the bankruptcy. We sent a copy of the bankruptcy discharge to the bank, too. So now I am very confused and extremely worried as to whether or not this means we tried to reaffirm the debt and are now under a new obligation for the foreclosure that began recently. Can you help me make sense of all this? I would appreciate your guidance very much. Thank you.
Hi Daniel,
Your query has been replied to in the given page:
http://www.mortgagefit.com/inprocess/about50112.html
Take a look at it. I hope it will help you.
Your query has been replied to in the given page:
http://www.mortgagefit.com/inprocess/about50112.html
Take a look at it. I hope it will help you.