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I'm Filing for Bankruptcy – Should I Keep My House?

Posted by David Leibowitz on February 7th, 2009 in Bankruptcy, Chapter 13, Foreclosure - Saving Your Home, , ,

These days, many people find that their home is worth a lot less than the balance due on their mortgages.  Worse, people are out of jobs, in debt and facing foreclosure.  Everyone wants to keep their home.  Can you afford to keep your home?  Under what circumstances?  How do you make that decision?

Budget

The first thing to figure out is your income and expenses.  It’s a good idea to limit your housing expenses to about 1/3 of what’s left over after payroll deductions.  If you are paying too much for housing, you will have a hard time with food, clothing, transportation and other necessary expenses in your life.  And if something unexpected comes up, you’re in trouble again.

Own or Rent?

Compare the cost of ownership of your house to the cost of renting something else in your neighborhood.  If you are reaffirming a mortgage debt or two, it’s like buying your house all over again at the current price.  I would advise against that unless your alternatives are not any better.

Wait for Chapter 13 Reform?

If Congress amends the Bankruptcy Code by adopting HR 200, now passed in the House Judiciary Committee, you’ll have the chance to file a chapter 13 case if your loan is more than your home value, if you are in default, tried to get a loan modification and mortgage foreclosure is threatened.  If you did commit any fraud while getting your loan, you’ll have a chance to have the court rewrite your loan, lower the interest rate, stretch out the term, cure the defaults, eliminate the adjustable mortgage feature and prepayment penalties.  You’ll have to pay all your income after expenses to your creditors for three to five years under the supervision of a trustee.  It may be worth it to you.  But this opportunity is still in the future.  It may be worth waiting for in your case.

What does this mean?

You have a difficult decision.  We’ve helped our clients to make good decisions for 35 years.  We can certainly help you.



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