What you Must Consider before Walking away from your Mortgage?
Around the country, an increasing number of homeowners have found
themselves struggling to make difficult decisions as adjustable rate
mortgages rise and it becomes increasingly hard to meet all of their
financial responsibilities. A short sale is often not an option for many
homeowners as more and more banks are requiring homeowners considering a
short sale to sign a promissory note for the balance on the loan. Since
this would ultimately defeat the purpose, it isn't realistic for such
homeowners. Neither is bankruptcy an option for homeowners in such a
difficult position as they often make too much money to qualify for
Chapter 7 under the new bankruptcy rules. Backed against a wall, some
homeowners have found themselves considering just walking away from the
mortgage and allowing the home to go to foreclosure in order to save
money and be able to still pay smaller debts. Trying to determine how to
get out of such a difficult situation is definitely a conundrum.
Before making any hasty decisions, it is important for homeowners to
first take a deep breath and ensure they have investigated all of the
options that are available to them. One of those options could be
assistance from the federal government. Homeowners whose lenders will
not agree to modify their loans or forgive their loan deficiencies
through a short sale may be able to receive help from the government.
Last year the Making Home Affordable program was signed into law.
Through this program homeowners who are struggling may be able to
receive help with mortgage modification and refinancing. There are
conditions which apply.
Bankruptcy should not be completely ruled out. In some instances, a
specialist may be able to provide guidance that could assist homeowners
in taking full advantage of bankruptcy laws. Such laws tend to vary from
one state to another and the laws also change frequently. As a result,
it is not uncommon to receive different answers from different people.
It is definitely worth it to make sure that you have the most up to date
and relevant information for your situation.
It is also a good idea to check and see whether you are still able to
qualify to file for Chapter 7. This is by far the simplest way of
clearing debts and being able to walk away and start with a clean slate.
Many people either assume or have been told they make too much money to
qualify to file for Chapter 7. While the changes to the bankruptcy law
which were made in 2005 did make qualifying more difficult, the new
means test is much less restrictive the many people believe. Even
attorneys can get it wrong sometimes. Some fairly generous exclusions
are allowed regarding gross income under the new test. For instance, you
may be able to deduct some 409(k) and pension contributions. In
addition, you may be allowed to deduct charitable contributions up to a
certain percentage of your gross income. Such exemptions can lower your
gross income that counted for the means test, which means that you may
qualify after all.
It is also important to recognize that even if you are not able to
qualify to file for Chapter 7 right now that could change in the future.
Mortgage payments are also excluded from your gross income under the
means test. Even if you currently make too much money to file for
Chapter 7 right now, if your mortgage rates should rise in the future it
could be enough to allow you to qualify.
Depending on your situation, you may actually be able to benefit from
Chapter 13 instead of Chapter 7. Chapter 13 is typically regarded as a
bankruptcy option for those individuals who do not qualify to file for
Chapter 7. Under Chapter 13, you will be held to a debt repayment plan
with the court working out the amount of your unsecured debts that you
can be expected to realistically repay. The court will also establish
the schedule for you repaying the debts.
While Chapter 13 will not reduce the value of your mortgage, a loop in
the law may actually be able to help you if the value of your property
has fallen enough the court may be able to assist with a
loan modification. This particular law can be quite beneficial if you happen
to have two mortgages because it means that the court might be able to
modify the second mortgage and possibly even reduce it down to zero.
If no other options work, you may find that you do simply need to walk
away from the mortgage; but at least make sure that you have pursued all
other options first.