Bankruptcy and Home Loans: What’s the Best Way to Save Your Home?
While divorce and separation are often caused by financial trouble, they can also lead to financial trouble. For instance, who keeps the house? Who makes the payments on the house? Who benefits from all the payments already made on the house during the years the marriage was intact? What happens when one spouse refuses to the leave the house, but the spouse not in residence is the only one who cares to keep the house from falling into foreclosure? Understanding bankruptcy and home loans is very important before proceeding.
Situations like this can get very tricky. Even when a couple is on the same page financially it can be difficult to save a home from foreclosure so it is not surprising that when a couple can’t agree on a game plan it’s extremely hard to manage. Some who find themselves in this situation consider turning to bankruptcy as a solution.
It’s not an uncommon situation, but it is a very difficult and trying one. The financial crisis has actually resulted in lower divorce rates because people simply cannot afford to get divorced or to manage two separate households financially. In the situation mentioned above, where one spouse who doesn’t care to pay on the home is insisting ton staying in residence while the home falls into foreclosure, but the spouse who moved out because the couple was separated actually does want to save the house, the best option might actually be loan modification. Bankruptcy is an option, but loan modification would be the best/recommended first choice.
Here are the options for this (hypothetical) case:
Option #1: Chapter 13 bankruptcy allows you to get caught up on the mortgage payment over a specified repayment period (usually 36 to 60 months). It’s referred to as a reorganization bankruptcy for a reason. It will allow you to keep the house and get caught up on all delinquent payments. Different bankruptcy courts have different requirements, but for most courts, you will need to make two payments each month. One will be to the mortgage company and one will be to your bankruptcy trustee (appointed by the court). The payment made to the trustee will be sent to the mortgage lender. This will bring you current on the missed mortgage payments. Depending on how far behind you are in your mortgage payment, the payment to the bankruptcy trustee could be quite high. Some can’t afford to make the payment that would be necessary under a Chapter 13 repayment plan.
Option #2: You can file Chapter 13 bankruptcy, manage to scrape together the necessary monthly payments for a short time period and then apply for a loan modification. Mortgage lenders who have been in receipt of regular, consecutive mortgage payments are more likely to work with borrowers on modifications.
Option #3: Apply for a loan modification without the benefit of bankruptcy. It’s possible that the lender may be willing to work with you. If a loan modification were approved, it would bring your mortgage current (placing the total of the missed payments into the loan balance). The lender would most likely want you to be living in the house when you apply for the loan modification as most will only work on a modification with borrowers if the house is their primary residence.
If you need assistance with Chapter 13 bankruptcy or determining whether bankruptcy or loan modification will be the best fit for your financial and personal situation, contact the southern California bankruptcy experts at Westgate Law.