The decision to file for bankruptcy is never an easy one. It is most often the last resort for someone having extreme financial difficulties such as a loss of income, divorce, or the onset of medical bills. If you are a homeowner one of the toughest question to answer is whether or not you want to keep your home. Sometimes it is better to cut your looses and start fresh but if your home is your dream you may choose to stay and work out an agreement with the mortgage company.
If your payments are behind when you file for bankruptcy, an automatic stay is placed against the mortgage holder. Until the stay is lifted by a court order they cannot foreclose on your home. Once that stay is lifted, they can begin normal foreclosure proceedings. If you have decided that, you do indeed want to keep your home there are certain steps that you will need to follow in order to do so.
First, you will need to have your attorney send a Letter of Consent to the mortgage company. Since the bankruptcy forbids them to try to collect the debt, this letter states that you are interested in keeping your home, setting up payment arrangements, and would like to receive financial communications from the mortgage company. By law, the mortgage company cannot help you with this letter.
Most mortgage companies will then require you to send them a few other documents to determine your eligibility for a repayment plan of past due amounts. A letter of hardship explaining why your payments are behind, a list of all your current monthly debt, and a pay stub showing proof of your current income will be needed to determine this.
Once a repayment plan is put into place, any missed payments or late payments will break the agreement. When the total past due amount is paid and the loan is current you will be asked to sign a reaffirmation agreement. What the reaffirmation agreement does is protects the mortgage company by you reaffirming that you do indeed owe this debt. For example if in 5 years you decide to walk away from your house if you did not sign a reaffirmation agreement, you will owe nothing because it falls under your bankruptcy. However if you have signed the agreement it is considered a new debt and you will be responsible for any balanced owed on the house. If you owe $100,000 and the mortgage company sells it for $80,000 you are still financially obligated to pay them the balance whether you live there or not.
While it is in our nature to want to save our homes, if you are filing bankruptcy it is something you definitely need to calculate and make sure it is want you want for the long run. By saving your home now and deciding to walk away in the future can be very costly and could inhibit your ability to get a mortgage in the future.
