Can Chapter 7 Bankruptcy Help With an Upside Down Mortgage?

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What is an Upside Down Mortgage?

An upside down mortgage is when more money is owed to the mortgage lender than what the home is worth. The can happen when a home is purchased when the market is doing well, but several years later, if the market declines, the value of a home can decline with it. A home that was purchased around the year 2005 for $250,000 may have been worth much less than that after the 2008 mortgage crisis, where home values plummeted. In that time, it’s likely that only a small percentage of the home loan was paid off. If the home sold for full market value, it wouldn’t be enough to cover what’s owed to the mortgage lender. This is not a position that any one wants to be in, and finding a way out of it can be difficult.

Can Chapter 7 Bankruptcy Help With an Upside Down Mortgage?

According to lawyers nationwide, such as Miami Foreclosure Defense Lawyers, by itself, an upside down mortgage isn’t enough reason to file for bankruptcy. However, if your current financial status can benefit from chapter 7 bankruptcy, due to credit card debt or otherwise, there are steps that you can take during the process in regards to your mortgage. Which steps those are will depend on whether or not you wish to keep the home, and if there are any outstanding mortgage payments.

If Payments Are Not Current

While chapter 7 can help in many ways, it does not provide a means of catching up on missed mortgage payments. In the even that mortgage payments are passed due, and you are unable to make up arrears, it’s very likely that the home will be foreclosed upon if you declare chapter 7 bankruptcy. There’s a possibility that you may be able to work out a deal with the lender, but even in the best circumstances, the probability of that is low.

If You Want to Keep The Home

Assuming that all payments are up to date, then all that’s needed to keep your home is to continue making you payments on time. With chapter 7 bankruptcy a trustee can sell off any non-exempt properties in order to pay off your debts, including selling a home if there is money to be made in doing so. But in the case of an upside down mortgage, selling the home would only result in money being owed to the mortgage lender, adding to the existing debt, rather than reducing it. Since there is nothing to be gained from the sale, the home can be kept.

If You Want to Let Go of The Home

If you’re up to date on your mortgage payments, but they’re more than you would like to be paying every month, you can go through a short-sale in order to get rid of the home. Alternatively, if you’re behind with monthly payments, the lender will likely foreclose on the home. In either one of these scenarios, you will still owe the lender money. Filing for chapter 7 bankruptcy allows this debt, referred to as a deficiency, to be discharged.

California Bankruptcy Attorneys

If you would like more information regarding bankruptcy in California, please visit our Ultimate California Bankruptcy Guide. If you’re thinking about filing for bankruptcy, or if you have any questions about your situation, and how we can help you, please contact us today. Our trained legal professionals understand that no two bankruptcies are the same, and the details of your case matter. Together we can help you protect your assets and navigate the complicated California bankruptcy process.

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