Bankruptcy can offer a homeowner needed relief when they are underwater in debt. Many California homeowners who elect to file a Chapter 13 bankruptcy are behind on their mortgage and need time to catch up. Generally, this type of bankruptcy allows a homeowner to make affordable monthly payments for a period of time. In some cases, consumers can no longer afford their payment plan. One consumer recently wanted to find out whether someone can allow their home to go into foreclosure while already in the bankruptcy process.
In this situation, a homeowner filed for Chapter 13 bankruptcy and was put on a payment plan. For unforeseen circumstances, the homeowner is no longer able to pay the mortgage and is unsure if they can walk away from their home. Generally speaking, a homeowner may wish to walk away from their home under a Chapter 13 once the person is deemed ineligible for a Chapter 7 filing. When the homeowner stops paying the mortgage, the bank usually takes legal action with the court to remove it out of bankruptcy and from there, the bank starts to foreclose on the property.
The process does not happen overnight and there are certain issues to take into account. The bank may not be so eager to move the home from bankruptcy into foreclosure. Even after the bank initiates the foreclosure, the process could take longer than expected. In some situations, the bank may not even consider foreclosure and may offer a different loan modification option for the homeowner to remain in the residence.
Under some circumstances, a California homeowner may be qualified to transfer from a Chapter 13 to a Chapter 7 bankruptcy. Being able to do this depends on how high a person’s income is and other factors such as assets. Chapter 7 eliminates most or all unsecured lines of credit, but grants a consumer the opportunity to keep their home and vehicles. Consumers who are facing this type of situation may wish to pursue as much legal knowledge on the bankruptcy process as it relates to home loans as possible before making a final decision on how to proceed.
Source: Fox Business, Can I Walk Away From Home in Bankruptcy?, Justin Harelik, Dec. 11, 2013