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
Hi ML,
You can speak to the lender for a deed in lieu of foreclosure and check out if the lender accepts it. If the deed in lieu is accepted, then the lender will not come after you for the deficient balance. Thus, your inherited land would be safe. If the lender forecloses the property, then you would be liable for the deficient amount. In that case, if you do not make the payments, then the lender can attach a lien to your inherited land.
Take care.
You can speak to the lender for a deed in lieu of foreclosure and check out if the lender accepts it. If the deed in lieu is accepted, then the lender will not come after you for the deficient balance. Thus, your inherited land would be safe. If the lender forecloses the property, then you would be liable for the deficient amount. In that case, if you do not make the payments, then the lender can attach a lien to your inherited land.
Take care.
we filed chapter 7 and it was discharged in august 2009 can we walk away from our home if it has not been reaffirmed
Hi Bobbylecamus,
You can surrender the property to the lender and walk away from it. The lender would foreclose the property and try to recover his dues.
Thanks
You can surrender the property to the lender and walk away from it. The lender would foreclose the property and try to recover his dues.
Thanks
I'm in California and in foreclosure. My sale date is in 3 weeks at public auction. I've been talking to my lender since Nov. 08 trying to get help. I've spent hours and hours researching, faxing paperwork to them, etc. In June they said I was "pre-approved" for a loan modification and would get back to me w/in 90 days with the final numbers. This is B of A by the way. I keep calling to check in on it and get the same run around, "It's still in process". The sale date was set for the beginning of this month but I got it postponed at the last minute. Even if they paperwork comes through they've told me my mortgage payment is going to be higher than it was before to pay the arrears of missed payments. I lost my job just after putting my paperwork through in June and couldn't afford the new payment if I wanted to with my freelance income. The house is $240K under water and wouldn't recover value for years. I have a 1st of $650K and a second of $90K - both with BofA (used to be Countrywide) and the comps in my neighborhood are selling anywhere from $450,000 to $525,000. I also have $225K in unsecured debt as well that I can no longer pay so I know Chapter 7 BK is unavoidable & I accept that. This past year full of anxiety and stress over financial problems is time I will never get back and I'm ready to throw in the towel & let the house go at this point. I just want my sanity back and the creditors to stop calling.
I've been meeting with BK attorneys over the last 2 months and haven't found one I'm comfortable with. Furthermore, it seems one person says one thing and another says the opposite. I met with one last week and while they were the best I've sat down with so far. They told me that I needed to file Chapter 7 before the foreclosure otherwise it would be very difficult to find a lender down the road willing to give me a home loan for ten years. It scared me and put me in panic mode. I can't tell if this was a tactic to get me as a client quickly or truthful info. They said a few other things in the meeting that felt a little like scare tactics too and I can't figure out if I'm being oversensitive or smart. I do hope one day to recover from my financial mess and might want to buy a home again so it's important I take the right steps in the right order. I also don't want to end up with a situation with a foreclosure that Chapter 7 won't discharge. I looked through lots of the discussions here but can't seem to get a definitive on whether or not I should rush to file Chapter 7 before the foreclosure sale date in 3 weeks. I don't care about stalling or halting the foreclosure because it's inevitable and in Chapter 7 my lender may just ask to push it forward. It's not a lot of time to get the paperwork together and I may have to hire an attorney I'm not completely comfortable with. I just don't want an attorney to rush this through and miss something that could hurt me years down the road. Sorry for the long explanation and TIA.
I've been meeting with BK attorneys over the last 2 months and haven't found one I'm comfortable with. Furthermore, it seems one person says one thing and another says the opposite. I met with one last week and while they were the best I've sat down with so far. They told me that I needed to file Chapter 7 before the foreclosure otherwise it would be very difficult to find a lender down the road willing to give me a home loan for ten years. It scared me and put me in panic mode. I can't tell if this was a tactic to get me as a client quickly or truthful info. They said a few other things in the meeting that felt a little like scare tactics too and I can't figure out if I'm being oversensitive or smart. I do hope one day to recover from my financial mess and might want to buy a home again so it's important I take the right steps in the right order. I also don't want to end up with a situation with a foreclosure that Chapter 7 won't discharge. I looked through lots of the discussions here but can't seem to get a definitive on whether or not I should rush to file Chapter 7 before the foreclosure sale date in 3 weeks. I don't care about stalling or halting the foreclosure because it's inevitable and in Chapter 7 my lender may just ask to push it forward. It's not a lot of time to get the paperwork together and I may have to hire an attorney I'm not completely comfortable with. I just don't want an attorney to rush this through and miss something that could hurt me years down the road. Sorry for the long explanation and TIA.
Hi NilVictor!
Welcome to forums!
When you file Chapter 7 bankruptcy, you will have to list all your assets. You can get your debts discharged in Chapter 7. However, if you want to save the property, you can reaffirm the loan and pay it off on a regular basis. Once you reaffirm the loan, you would become personally liable for the mortgage dues. However, if you don't reaffirm the loan, you will not be liable for the payments. The lender will foreclose the property and recover the dues.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
When you file Chapter 7 bankruptcy, you will have to list all your assets. You can get your debts discharged in Chapter 7. However, if you want to save the property, you can reaffirm the loan and pay it off on a regular basis. Once you reaffirm the loan, you would become personally liable for the mortgage dues. However, if you don't reaffirm the loan, you will not be liable for the payments. The lender will foreclose the property and recover the dues.
Feel free to ask if you've further queries.
Sussane
Thanks, Sussane. My real question is whether or not it makes a difference if I file Chapter 7 before or after the foreclosure sale date of my home. My property isn't an asset and actually a liability at this point as it's $240K upside down so saving it isn't a viable option for me. BK and foreclosure are inevitable for me at this point and I've made my peace with that.
What I'd really like to know is if filing Chapter 7 before the foreclosure sale offers any real advantages. A lawyer I met with was told me if I file BK after the foreclosure I'd end up with a BK and a foreclosure on my credit report which would make it very difficult to get a home loan for 10 years. He said if I file the BK before the foreclosure sale date the foreclosure gets wrapped up in the BK and only a BK shows up on my credit report which would allow me to possibly qualify for a home loan after 3 years from discharge if I'm able to rebuild my life financially. Is this true or is it a way for the attorney to get me to hire him for the BK quickly because he knows the foreclosure sale is 3 weeks away?
I thought the only advantage to filing BK before the foreclosure sale was to halt the proceedings and buy some more time. In my case I don't care about getting a few extra weeks in the house; it's been painful enough being here knowing I'm losing it.
What I'd really like to know is if filing Chapter 7 before the foreclosure sale offers any real advantages. A lawyer I met with was told me if I file BK after the foreclosure I'd end up with a BK and a foreclosure on my credit report which would make it very difficult to get a home loan for 10 years. He said if I file the BK before the foreclosure sale date the foreclosure gets wrapped up in the BK and only a BK shows up on my credit report which would allow me to possibly qualify for a home loan after 3 years from discharge if I'm able to rebuild my life financially. Is this true or is it a way for the attorney to get me to hire him for the BK quickly because he knows the foreclosure sale is 3 weeks away?
I thought the only advantage to filing BK before the foreclosure sale was to halt the proceedings and buy some more time. In my case I don't care about getting a few extra weeks in the house; it's been painful enough being here knowing I'm losing it.
Nilvictor.
you do not have any equity in your house. better to forget it. credit score can be improved
you do not have any equity in your house. better to forget it. credit score can be improved
but my question is if anyone can answer it: does it make a difference if I file Chapter 7 after the foreclosure versus filing it before? If so, what are they?
Again, I don't want to stall foreclosure proceedings so that part of the equation doesn't matter to me.
thanks!
Again, I don't want to stall foreclosure proceedings so that part of the equation doesn't matter to me.
thanks!
Hi NilVictor,
If you file bankruptcy before the foreclosure proceedings have started, the court will issue an automatic stay and your creditor will not be able to sue you for the debts. You will get 3-4 months time in your hand. Meanwhile you can decide whether or not you want to reaffirm the loan and make the payments. If not, then you'll have to surrender the property to the lender. This will help him in selling off the property and recovering the dues. However, as far as I know, your credit will be affected by foreclosure whether it takes place before or after the bankruptcy filing.
If you file bankruptcy before the foreclosure proceedings have started, the court will issue an automatic stay and your creditor will not be able to sue you for the debts. You will get 3-4 months time in your hand. Meanwhile you can decide whether or not you want to reaffirm the loan and make the payments. If not, then you'll have to surrender the property to the lender. This will help him in selling off the property and recovering the dues. However, as far as I know, your credit will be affected by foreclosure whether it takes place before or after the bankruptcy filing.
our lender does not want to lower the price our home base on a current price and with the help of negotiator can they still forclose our home
we are not making payment right now but the arear and can the BK court cannot do anything? about this
we are not making payment right now but the arear and can the BK court cannot do anything? about this
Hi bk,
If you file for Chapter 13, the lender will not foreclose the property. Under Chapter 13 bankruptcy, you would receive a payment plan to pay off the dues. As per the payment plan, you will have to clear off the dues within 3-5 years.
Thanks
If you file for Chapter 13, the lender will not foreclose the property. Under Chapter 13 bankruptcy, you would receive a payment plan to pay off the dues. As per the payment plan, you will have to clear off the dues within 3-5 years.
Thanks
thanks James it is nice to know some one cares without a charge or free :)
like i said the lender jack up our mortgage payment up to $3000
plus arear $900 payment plan for 5 years. so we hired a loan modification agent to negotiate our loan.but the lender not willing to lower the price to current market and right now we are behind 3 months since the BK was approve by the court our agent said the lender is going to file a motion for a release of the property. are we still protected by BK13?
thanks
like i said the lender jack up our mortgage payment up to $3000
plus arear $900 payment plan for 5 years. so we hired a loan modification agent to negotiate our loan.but the lender not willing to lower the price to current market and right now we are behind 3 months since the BK was approve by the court our agent said the lender is going to file a motion for a release of the property. are we still protected by BK13?
thanks
Hi bk,
If the lender files a motion against the automatic stay and if the court grants it, then you won't be protected under Chapter 13 bankruptcy. Once the automatic stay is lifted, the lender would have the rights to sue you for defaulted amount.
If the lender files a motion against the automatic stay and if the court grants it, then you won't be protected under Chapter 13 bankruptcy. Once the automatic stay is lifted, the lender would have the rights to sue you for defaulted amount.
thanks james
you said if the court grants so there is a possibility that the court will not
i believe i have case to win this because originaly my firts mortgage was $2000 after the BK approve the lender charging for house insurance for the past few months but we dont missed any payment to the insurance
and he also add a state tax the amount of $3000 a year and some escrow
fee maybe he is right but why i am going to pay $3000 a month for 30 years if i owed him less than $5000 i dont understand that
james i want to thank you for taking your time answering my question
you been very helpful GOD BLESS YOU
you said if the court grants so there is a possibility that the court will not
i believe i have case to win this because originaly my firts mortgage was $2000 after the BK approve the lender charging for house insurance for the past few months but we dont missed any payment to the insurance
and he also add a state tax the amount of $3000 a year and some escrow
fee maybe he is right but why i am going to pay $3000 a month for 30 years if i owed him less than $5000 i dont understand that
james i want to thank you for taking your time answering my question
you been very helpful GOD BLESS YOU
Hi! I am looking for some insite on my situation. I got divorce 4 years ago and was quick claimed off the mortgage. Unfortunatly my ex has defaulted and they are getting ready to forclose on the property. As I am still on the "loan" I am still liable for it. Now my credit is not horrible but not the best. The worst of it is from him defaulting over the last few years. I have talked to some of his neighbors and it seems he has moved out of the home and per the bank he will not respond to calls. The house is over $130,000 due and is only worth MAYBE $60,000. I dont want the home or the payment but dont want the bank to come after me now. Would I be better off doing BK or letting it go? I would like to buy my own home so the best option for the future is best . Thank you so much for any help