One of the most important questions many have to ask themselves when they file bankruptcy is whether or not they should save their house. It’s safe to assume that most who are reading this are attached to their home – otherwise you wouldn’t be bothering with searching for this particular answer.
Knowing that you are attached to your home is important, but it’s not the only thing you need to ponder when you are making the decision of whether or not you should save your house when you declare bankruptcy. You also have to consider if you are able to afford it. Considering how many people found themselves in a sub-prime loan with more house than they could actually afford, walking away from your house might be the best option.
Carefully consider the financial aspect of your decision. Does your current income justify ownership of your home? General recommendations indicate that a housing payment not exceed 30% of an individual/family’s gross monthly income. That means that if you make $5,000/month, your mortgage payment should be no more than 30% of that amount. That would make your mortgage payment “cap” $1,500. If your current home’s mortgage is higher than 30% of your gross monthly income, you might want to put some considerable thought into doing the wise thing – and walking away from the house during the bankruptcy process.
If you do decide to walk away from the house you need to protect yourself against potential deficiency judgments. Individuals who elect to walk away from their home during the bankruptcy process can be held liable for any deficiency that occurs when the house is sold for less than is owed on the mortgage. In many situations, California residents do not need to worry about deficiency judgments, but it’s important to discuss the particulars associated with your mortgage with an expert in bankruptcy law to prepare for every contingency. Where state law does not protect homeowners, bankruptcy will. In addition, certain circumstances may require that bankruptcy filers work out an agreement with their lenders agreeing to forgive the debt. (This may pose additional problems as the IRS will tax debt “forgiven” in this manner as additional income and a bankruptcy will not forgive money owed the IRS).
Contact Westgate Law today to discuss how you can safely walk away from your overwhelming mortgage payments today. Also watch for upcoming articles on how to save your home by filing for Chapter 13 bankruptcy.