Foreclosure and Chapter 13: Should I Keep My House If I am Upside Down?

Many people have made large investments in their homes with the idea that doing so offered security to their family. With our housing crisis, those same folks have seen their equity washed away by tumbling prices. Chapter 13 bankruptcy offers a chance for clients to catch up on payments after they have fallen behind, and temporarily halt foreclosure proceedings.

Clients also have the option, in bankruptcy, to surrender the house back to the bank. Doing so will clear away your remaining obligation on the mortgage.

There are a couple critical factors to consider when deciding whether using a bankruptcy case to save your house is a wise move financially. Here is a checklist:

1. Is there any equity remaining in the house? This can be a difficult question to answer because prices have been so volatile recently. However, getting the best information available is smart when making such a tough decision. Usually, local realtors will help appraise the value of your home for little or no charge. If you are upside down, determining how much your loan balance exceeds your property value will be critical to determining your best move going forward.

2. How much will your alternative housing arrangements cost? Make a few telephone calls, or check out online classified listings to determine what a similar housing arrangement would cost. Does your family have any special needs (like school districts) which might cost more? Don’t forget about moving expenses!

3. Can you afford your current payments? A Chapter 13 case works best when you determine the mortgage payments would be affordable for your family if your unsecured debts were wiped away. Attempting a mortgage modification with your lender could help reduce your payments and make a Chapter 13 more attractive, depending on your circumstances.

Figuring out your housing situation is one of the most critical decisions clients face when getting their financial lives back on track. When making your decision, consult with an experienced bankruptcy attorney who can guide you through the process.