Walking Away From Your Home Rather than Suffering the Effects of Foreclosure
Homeowners, who are faced with the threat of losing their home due to delinquency in the payment of mortgage, but who still hope to save themselves from the negative effects a foreclosure will make on their credit rating, may resort to either a short sale or, the now becoming popular, deed in lieu of foreclosure.
In the deed in lieu of foreclosure arrangement, a homeowner is still bound to lose ownership of his or her property; the homeowner’s financial incapability causes him or her to surrender his or her property to the lender in exchange of the cancellation of the loan. This arrangement also does away with the necessity of filing for a foreclosure proceeding, saving both lender and loaner from the inconveniences and fees associated with it.
Prior to the actual acceptance of the deed in lieu of foreclosure, however, the loaner may be required to put his/her property on the market, usually for a duration of three months (there are instances, though, when property owner is simply asked to turn over the deed/title to the lender). If asked to sell his/her own house, this is because lenders would, as much as possible, prefer not to incur costs associated with maintaining and selling it.
A deed in lieu arrangement will definitely not cause a major effect on your credit, just make sure that the lender agrees to forgive whatever balance on the loan may still remain after your property has been sold. But to enjoy all the benefits a deed in lieu of foreclosure can provide, you first have to qualify for it. Eligibility for this arrangement requires that your property does not have tax liens on it and that you do not have home equity loans or any other existing mortgages.
There are lenders, especially those who already have more than a handful of foreclosed properties, who would not be willing to accept a deed in lieu proposal. They would rather take cash for payment of mortgage. There are also lenders, however, who would think twice before rejecting the proposal, knowing that a foreclosure would be more costly on their part.
Read MoreChapter 13 Bankruptcy
Chapter 13 bankruptcy is also known reorganization and involves a repayment plan mandated by the bankruptcy court. Creditors are provided with a way to be paid back some or the whole of what a debtor owes over a period of years, usually from 3 to 5 years, based on the debtor’s current and future income. Chapter 13 bankruptcy provides debtor protection from foreclosure, wage garnishment, and debt collection activities. The court determines the amount a creditor will be paid based on several factors, but will be at least as much as what the creditor would have received under a Chapter 7 filing.
Chapter 13 bankruptcy is indicated when a debtor has a regular source of income with enough disposable income to make a repayment scheme feasible. It is ideal for those who want to avoid losing non-exempt property, catch up on missed mortgage payments, and pay back taxes without incurring more debts in the form of interest charges and penalties.
A debtor who manages to complete the payments mandated by the repayment plan will be discharged of all the remaining amounts due prior to the bankruptcy filing. This can result in significant savings as the court determines what needs to be absolutely paid, which usually means waived or reduced interest and penalty payments at least.
While Chapter 13 does not discharge all debts, including credit card debts for luxury items, taxes, and child support back payments, the repayment plan can make it substantially easier to pay back these debts. Repeated filings for Chapter 13 are allowed at anytime.
When filing for Chapter 13 bankruptcy, however, it must be remembered that income is tied up throughout the repayment period, typically 3 to 5 years, and that total debts should not exceed $1 million. Unsecured debt should not be more than $250,000. Stock and commodity brokers are not eligible for Chapter 13 bankruptcy.
Filing for Chapter 13 bankruptcy makes a lot of sense if you have debt you cannot manage on your own, so don’t wait until it’s too late.
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