By Bankruptcy Info Blog | September 13, 2014 at 04:09 PM EDT | No Comments
You have a home and a mortgage and you are in financial trouble. Now what? The following are some scenarios that just might fit your situation:
Scene one: Jane and John Doe have a home worth $100,000. Their mortgage balance is $70,000. and they are current in their house payments but behind in just about everything else. They think if they could just get rid of the credit card debt they will be okay. They could file a chapter 7 bankruptcy, wipe out all that credit card and medical debt and still keep their house. In Illinois each bankruptcy filer is allowed a $15,000. homestead exemption. In this case husband and wife stack their exemptions.
Scene two: Jane and John Doe’s house is still worth $100,000. but their mortgage is only $45,000. If they file a chapter 7 the bankruptcy trustee would want the house. It would be sold and the Does would receive their exemption amount of $30,000. – not their $55,000. equity. They would lose $25,000. which would be distributed to creditors. In this situation a chapter 13 payment plan would be a better option. They keep their house and make payments through the plan up to the amount of their unprotected equity ($25,000.). If they have $20,000. in total debt they must pay 100% of their debt. But if they have $200,000. in total debt they only have to pay around 12% of their unsecured debt.
Scene three: The Hunters are 4 months behind in their mortgage payments and the bank has just served them with foreclosure papers. But Edward Hunter lost his job and can’t find another. His wife’s salary is not enough to cover the mortgage and keep food on the table. They cannot keep their home. They can’t file a chapter 7 and keep their home because the mortgage company would simply ask the bankruptcy court for permission to continue their foreclosure action because they are not getting current mortgage payments. They can’t file a chapter 13 because after paying all their current living expenses they do not have enough money to pay into a plan. If the Hunters have a lot of equity in their home they should immediately try to sell their home. If they have little or no equity they should consider staying in the home but not making mortgage payments for the many months it takes before the foreclosure is final. They might consider filing a chapter 7 at some point in the future to wipe out all their debt and get a fresh start.
Scene four: Mary bought her condo in 2007 just before the housing market fell apart. It is now worth $40,000. less than the mortgage balance. Her house is “under water”. Her mortgage payments are killing her and she finds she is falling farther and farther into credit card debt. She can’t sell the house unless the mortgage company agrees to take less than the full balance. This is called a “short sale”. She could also offer to give the condo back to the bank if they release her from making future payments. This is called giving a “deed in lieu of foreclosure”. Mary could also file a chapter 7 and just walk away from her mortgage and other debt. She would have to move but she would be able to sleep at night.
Scene five: Jack and Jill own a house that is underwater by a substantial amount. They have been able to keep current on their low monthly mortgage payments but not their other bills. A creditor filed a lawsuit and Jack’s wages are being garnished. They have a son in high school and don’t want him to change schools but don’t want to be stuck in their unsellable home forever. They can file a chapter 7 now and immediately stop the wage garnishment. Jack and Jill have decided to continue making their mortgage payments until their son graduates. If the housing market has improved in 3 years they will sell their home. If they can’t sell it they will simply walk away. The bank will be able to foreclose on the property but they won’t owe a dime because of the chapter 7.
If you are worried about your house and your debt give me a call or send me an email. I can help you go through your many options and perhaps together we can find a solution that works.