This is one of the most frequently asked questions I hear from prospective bankruptcy clients. For most clients that the answer is “Yes, you may very well lose your home but you will not lose it because of the bankruptcy. If you lose it, it will be because you can’t afford it and filing bankruptcy just can’t help you save it.”
For some people, Chapter 7 helps avoid foreclosure because can wipe out many other unsecured debts like credit cards and medical bills, freeing up the monthly income so the homeowner can make those mortgage payments each month and feed their family.
For other people who might be behind on mortgage payments, Chapter 13 can stop foreclosure, and also eliminate unsecured debts and it can give the homeowner time (up to five years) to catch up the missed mortgage payments.
- So why do I tell people they may lose their home?
Because when we look at their income and compare it to the expenses they have, there isn’t enough money to cover the house payment and to take care of the other needs of the family. In other words, they can’t afford the house.
- Foreclosure is sometimes unavoidable.
Often the clients’ incomes cover the monthly mortgage, utilities, car payment, gasoline and food but when we look at the other things that don’t come up every month like car or house repairs, clothing, medical or vet expenses, and travel to see family, it becomes clear that there just isn’t enough money to cover everything and something has to go.
If the mortgage is higher than what a rental would cost, sometimes it makes sense to move and sometimes, the homeowners don’t have a choice.
In a perfect world, if you can’t afford your house payments you would just sell the house and move.
In this economy, we frequently see a mortgage that is higher than what the house is worth. If you owe more on the house than it is worth, selling might not be possible, or at least not easy.
Short sale may be an option, but the homeowner might owe a deficiency balance on any unpaid mortgage due and/or the lender(s) may not agree to the short sale. Additionally, there may be tax consequences from forgiven debt on any unpaid balance. Sadly, sometimes the homeowner’s better option is to just walk away from the house and file for bankruptcy.
Walking away from your home is extremely difficult, whether you are chosing to move voluntarily or you are being forced out. My colleague Chip Parker, an attorney in Florida who is known for his foreclosure defense practice wrote an excellent article on the difficulty of parting with a home, and I don’t believe I can express the emotions involved any better than he did.
I do know the sadness of leaving a home where many memories were made, and I know it often isn’t easy even if the decision was made voluntarily. I also know that when the move is complete, what was left behind was a house because home travels with you. This is much easier said than done, but something too many families face today.
written by Susanne Robicsek, Charlotte NC Bankruptcy Lawyer
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Last modified: May 7, 2014