Even a Simple Chapter 7 Bankruptcy Can . . . Help You Walk Away from Your Mortgage

Posted by Kevin on September 22, 2014 under Bankruptcy Blog | Comments are off for this article

Filing Chapter 7 bankruptcy while letting go of your home can be a smart combination.

_____________________

Chapter 13—the three to five year partial payment plan—consists of an entire toolbox full of different tools to help people hang onto their homes. But that may not be what you need. After getting informed about how those tools would work (or not work) in your situation, you may decide that it’s best for you to walk away from your home. If so, here are some advantages of doing that in conjunction with filing a Chapter 7 bankruptcy:

• Have more control over when you leave:

If you have a foreclosure sale date scheduled, or a foreclosure lawsuit pending, usually you would have no say about when you have to leave. You could even be forcibly evicted by county sheriff deputies. However, if you file a Chapter 7 bankruptcy case, that will delay the foreclosure sale or lawsuit, at least for a few weeks, and possibly for a matter of months. That alone could save you a couple thousand dollars in rent. Also, after a bankruptcy filing, your mortgage lender may well be willing to negotiate a departure date convenient to you, in return for avoiding their need to rack up a lot of attorney fees. As part of the deal you may be willing to sign over your title through a “deed in lieu of foreclosure,” with no risk of further liability since your bankruptcy case is discharging any remaining debt.

• Avoid house-related debt following you:

Depending on your situation, and on your local state laws, after surrendering a house without bankruptcy you risk being saddled with debts coming at you from various directions. Sometimes you could be liable for any deficiency on the first mortgage.  Surrendering your house to a first mortgagee does not take you off the hook on a second mortgage. You could also be liable on other debts related to the home—such as unpaid utilities, contractor liens, property tax liens, or homeowner association dues. Many of these debts would be discharged if you filed a bankruptcy.

• Have an attorney in your corner:

Fair or unfair, your mortgage lender will likely treat you better when it knows you are being advised and represented by an attorney (assuming that you would be filing your Chapter 7 case through an attorney). You will have the peace of mind that comes from knowing your rights, understanding what will happen when, and having an advocate available to get directly involved as needed.

• Get a fresh financial start instead of a continuation of a vicious cycle:

If you are surrendering your house and reducing your monthly cost of keeping a roof over your head, you may be tempted to think you don’t need a bankruptcy. Perhaps you don’t. But if you have fallen so far behind on you mortgage that it’s gotten to the point of foreclosure, the odds are that you need more help than giving up your house alone will achieve. You at least owe it to yourself to get legal advice about your financial situation and  your realistic options.  You can then be pro-active to turn your situation around rather than waiting for the other shoe to drop.

Think about it

Even Simple Chapter 7 Bankruptcy Can . . . Get You Out of Bad Vehicle Loan

Posted by Kevin on September 9, 2014 under Bankruptcy Blog | Comments are off for this article

Saving the vehicle sometimes is not the best option, so Chapter 7 bankruptcy gives you a safe way out.

_________________________

Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” each provide ways for you to catch up on and keep your vehicle if you’re struggling to keep up on the payments. But in spite of these options, it may simply be the best for you to surrender the vehicle and write off what you still owe along with the rest of your debts.

_________________________

Bankruptcy gives you a variety of options to deal with a vehicle that you’ve fallen behind on but need to keep. If you’re only a payment or two behind, under a straight Chapter 7 bankruptcy you would likely be given about two months to catch up and then thereafter keep up on the regular payments once you’ve written off the rest of your debts so that you can better afford to do so. Or if you’re further behind, a Chapter 13 payment plan would give you much longer to catch up, and if the loan is more than two and a half years old may even allow you to both make smaller monthly payments and lower the balance through a “cramdown.” Bankruptcy can usually give you a good way to keep a needed vehicle.

Understandably the focus in bankruptcy is usually on how to save your home, or vehicle, or something else of importance. But one of the advantages of bankruptcy is that it can free you from some of your assumptions. One such assumption is the usually accurate one that if you surrender a vehicle to its creditor you will continue to owe a lot of money. This is usually true because 1) vehicles tend to depreciate faster than their loan balances are paid down, 2) once they are surrendered they are usually sold at auto auctions at bargain basement prices, and 3) your account is charged all the surrender and sale costs, all of which usually leave you owing a shockingly high “deficiency balance” after the surrender. The fact that you would continue to owe a lot on a vehicle you no longer have is obviously a big disincentive to surrender it in the first place. But since a Chapter 7 bankruptcy will reliably discharge (legally write-off) any such deficiency balance, that disincentive can go out the window. You can ask plainly: is it better to hang onto this vehicle with the options that Chapter 7 and 13 provides you, or is it just better to walk away owing nothing. Bankruptcy opens you up to both sets of possibilities.