Keeping Your House After Filing Bankruptcy

Foreclosure is a crisis that has hit our country hard over the past few years. The financial crisis that we call “The Great Recession” has taken the US by storm. Many consumers are turning to filing bankruptcy just to get a little relief from the debt they’ve accumulated. As this option becomes more of a reality for some homeowners, the question is frequently asked, “If I file bankruptcy, will I still be allowed to keep my home?”

Filing for bankrupcty doesn't mean you have to foreclose on your home.

If this is the situation you find yourself in, options may be available to help you. Filing a Chapter 7 Bankruptcy may help delay the foreclosure process by a few months. On the other hand, a Chapter 13 Bankruptcy may be helpful in helping you avoid foreclosure completely. Let’s take a look at some of the options that may be available to you.

Reaffirmation Agreement

• When filing for bankruptcy, this reaffirmation agreement is a signed contract between the lender and the debtor. The details are as follows:
• The agreement reaffirms (or re-establishes) the personal liability of the homeowner’s debt.
• The agreement must be made (reaffirmed) before the filing of the Discharge in Bankruptcy.
• The reaffirmation agreement must be approved by the court (bankruptcy judge).
• It is usually to the lender’s advantage to sign the agreement because it keeps the homeowner binded to the original debt.
• The homeowner has 60 days after the agreement is signed to change their mind and revoke it.

Loan Modification

• A loan modification is a permanent change in the terms of the homeowner’s original mortgage loan.
• It allows the loan to be reinstated under the new terms agreed upon.
• The new terms of a loan modification will include modified, lower mortgage payments that the homeowner can now afford.

FDIC Sponsored Loan Modification Program

• This program is known as the Homeowner Affordability and Stability Plan.
• This program was set up to help borrowers who can no longer make their mortgage payments due to financial hardships and insufficient income.
• It provides alternatives for borrowers who aren’t past due on their mortgage payments, but cannot refinance because the value of their home has decreased substantially.
• In order to further help borrowers get on their feet, there are no fees charged to borrowers under this program.

Can I Keep My Home in Bankruptcy?

The answer to this question is yes, and no. There are ways to avoid foreclosure when filing bankruptcy. But, it must be done right to get the best results. Let’s take a look at some of the options that may be available to you:

Order of Relief

When anyone, including a homeowner, files for bankruptcy, the courts will automatically issue an Order of Relief. This is helpful to the distressed homeowner in two ways:

Chapter 13 Bankruptcy Mortgage

• 1^st Mortgages & Chapter 13
• The arrears are paid off over the length of the new repayment plan.
• As long as repayment plan is followed, foreclosure is avoided.
• 2^nd and 3^rd Mortgages & Chapter 13
• The courts have the right to “strip off” 2^nd and 3^rd mortgages, making the homeowner no longer liable for them.
• The courts also have the option to re-categorized 2^nd and 3^rd mortgages to unsecured debt. This will make them the last priority on the list of debtors.

Chapter 7 Bankruptcy Mortgage

• Start Saving – During the pending phase of your Chapter 7 bankruptcy, you will still be allowed to live in your home. You can live there, free of charge, for up to several months during this phase. Utilize this time to save your money in case you have to relocate after foreclosure. There is also the possibility of being able to save your home. So, be sure you are saving just in case this option becomes available to you.
• Canceled Debt – Chapter 7 Bankruptcy can cancel any and all debt that was secured by your home. This can include your 1^st and 2^nd mortgages, as well as your home equity loans.

* Disclaimer: This article is for informative purposes only. It is in no way intended to be used as legal advice. If you are thinking about filing for bankruptcy, contact a bankruptcy attorney for further assistance.