Home loans and bankruptcy

As explained HERE, homeowners who file bankruptcy do not necessarily lose their homes. In fact, losing a home through bankruptcy is pretty rare. One of the first things you need to decide when considering bankruptcy is whether or not you want to keep your home. Sometimes it makes sense to keep making your payments and sometimes it makes sense to surrender the house to your lender.

If you file bankruptcy and want to keep your house, you’ll need to pay for it. Some people have the idea that a bankruptcy allows you to keep the house while the mortgage obligation is written off. I don’t know where this “free house” idea originated, but it’s not true.

What if you want to keep the house, but just can’t afford your current payments? In most cases, bankruptcy can’t force the lender to agree to a loan modification. But many lenders will work with you if you qualify for a hardship modification.

You may be able to find help through the U.S. Dept. of Housing & Urban Development. Another good resource is the Making Home Affordable program (HAMP). Not all lenders participate, so you may need to speak directly with your lender and ask if any hardship modifications are available.

If your efforts to save the house outside of bankruptcy prove unsuccessful, bankruptcy may be able help. By eliminating most of your unsecured debt, your budget may allow you to afford your mortgage payments. If you’ve fallen behind on your mortgage payments by a few months, Chapter 13 may allow you to cure the arrearage over three-to-five years if you can show that you can afford to do this in addition to making your regular monthly payments.

Contact a local bankruptcy attorney if you have other questions relating to the ways in which bankruptcy may help you keep your home.

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