Protecting Your Home: Debt Relief Strategies for Avoiding Foreclosure
Many homeowners lose their home because they presume that they cannot protect it once they are seriously delinquent on their mortgage, or a foreclosure sale has been scheduled. However, our Baltimore bankruptcy attorneys have stopped foreclosure sales even when we were contacted only days or hours before a scheduled foreclosure sale date. While homeowners should never procrastinate in seeking legal representation when their home is at-risk, they also should not give up hope even if they are afraid it is too late to save their home.
Our law firm uses a broad spectrum of tools to assist homeowners in protecting what for many people constitutes their most valuable asset. We have provided an overview of some of the strategies we employ to help distressed homeowners get back on their feet and avoid foreclosure:
Chapter 7 Bankruptcy
While many people assume that Chapter 13 bankruptcy is the most applicable form of bankruptcy when facing foreclosure, Chapter 7 can be more advantageous in certain situations. If you are struggling to make your mortgage payments because of job loss, medical bills or other form of temporary financial hardship, Chapter 7 can permit you to eliminate a substantial portion or all of your unsecured debts. The Chapter 7 discharge can free up monthly cash flow, so more income is available to make your mortgage payment.
If you are upside down on your home, you might need to carefully consider whether it makes economic sense to hold onto your home, but you also do not have to worry about jeopardizing your home equity in a Chapter 7. Even if you have equity in your home, you can protect $23,000 in equity by using the homestead exemption as of June 2014. Further, homes held in the form of tenancy in the entirety can be protected without limitation as to dollar amount from the debts of one spouse.
Chapter 13 Bankruptcy
If you have too much equity in your home or both spouses have debts that need to be discharged, Chapter 13 might provide a better option for catching up if you are behind on your mortgage payments. Chapter 13 permits you to stretch out your arrearage payments so that you can pay a portion of the past due amount over a three or five year period. The current mortgage payments must also be kept current. Whether you file Chapter 7 or Chapter 13, you will have the advantage of the automatic stay, which can halt the foreclosure process even at the “12th hour”.
Bankruptcy is a particularly attractive option for homeowners if they are in the late stages of the foreclosure process because of the impact of the automatic stay, which will enjoin the mortgage company from moving forward. However, our foreclosure solution attorneys carefully evaluate our client’s situation to determine the best possible strategy. Some non-bankruptcy options might include:
- Loan Modification– Our law firm has helped many homeowners negotiate loan modifications that can reduce their payment, interest rate and even outstanding principle depending on the situation. This approach can allow a homeowner to protect their home without resort to bankruptcy.
- Short Sale– If bankruptcy or a loan modification is not viable option, a short sale can protect your credit. In a short sale, the bank agrees to accept less than what is owed on the mortgage to facilitate the sale of the property. While this approach can prevent you from showing a foreclosure on your credit report, there are a couple of potential disadvantages to this approach. Short sales can be extremely fragile, so they often fall apart at the last moment. Further, federal or state tax entities sometimes consider the forgiven portion of a mortgage as taxable income. Finally, you must make sure that any short sale agreement includes the bank waiving any right to seek a deficiency judgment for the unpaid loan balance. These disadvantages make it essential that you consult with an experienced attorney.
- Deed in Lieu– This alternative to bankruptcy or foreclosure involves relinquishing the deed to the bank in exchange for an agreement to avoid or terminate the foreclosure process. This foreclosure solution can present issues similar to those that might arise in a short sale in terms of potential liability for a deficiency judgments and adverse tax consequences.
- Strategic Walkaway– If you have significant negative equity in your home, the option of a strategic walkaway is an option that must at least be evaluated. Granted, this strategy will result in a significant adverse impact on your credit report.
If you are behind on your mortgage or facing a foreclosure sale, our experienced Maryland loan modification lawyers at Georgette Miller and Associates P.C. can evaluate your situation and formulate the best option to fit your situation. Please feel free to contact us today at 866-96-GMLAW to learn how we can help.