Mortgage Included in Bankruptcy?
Since 2011, I have been focusing much more time and energy to educating folks about being able to buy again after bankruptcy, foreclosure, short sale or deed in lieu of foreclosure.
One of the most common questions I get is in regards to including a mortgage or mortgages in a bankruptcy.
This is a tricky question because it seems that bankruptcy attorneys do not always do a great job of explaining to folks what it means to include a mortgage in a bankruptcy.
Bankruptcy does not protect you from foreclosure
One of the biggest misunderstandings about including a mortgage in a bankruptcy is that folks believe that once they do, they no longer own the home.
This could not be further from the truth. Bankruptcy protection simply protects you against the bank suing you, and getting a deficiency judgement (sue you for the losses they incurred) IF you should default on the mortgage.
It’s also important to understand that while you cannot be held accountable by the lender if you default, you are still responsible for the mortgage and you are still the owner of the home.
While filing for bankruptcy will postpone the foreclosure process, it does not pay off the mortgage or protect you from foreclosure.
The problem I see most often is that after filing for bankruptcy, on the advice of the bankruptcy attorney, folks stop making payments on the home and either just walk away or continue to live in the home until the foreclosure proceedings are complete.
The challenge with walking away or simply “waiting it out” is that the banks are taking YEARS to foreclose in many cases. As you can see from the comments on an earlier article I wrote “Including Mortgage in Bankruptcy is NOT Free and Clear”
Protect yourself and buy again sooner
The main purpose of this article is to help you understand the process so that you don’t have surprises in the future once you’ve gotten back up on your feet. My suggestion is that if you feel that you will not be able to keep the home, and if you want to be in a position to buy another home as soon as possible, consider either a deed in lieu of foreclosure or a short sale.
Neither option will cost you money to do, and both options will at least give you control over the the process and help you buy again sooner than if you were to allow the bank to foreclose on the home.
If you have any questions about your options, feel free to live chat, shoot me a private email or leave a public comment below.