We’ve all heard about people just “walking away” from their houses with the way the housing market has been lately. I wrote an article about the pitfalls of the “strategic defaults” so many people have been writing about. If a person decides that the house is too expensive, and they can’t make the payments for whatever reason, there are ways to protect them in a bankruptcy.
First, the person should determine, with a professional, how much the property is realistically worth. Not just how much it was appraised at a few years ago. We are talking about how much it would sell for tomorrow. Then, the person would subtract out the total balance owed on a mortgage. That remaining figure is the “equity” left in the house. If there is say, more than $10,000.00 left, it may be worth it to put the house on the market to see if it will sell.
If it won’t sell, or doesn’t have any equity, then you can think about “walking away”. Once you make that decision, you would then consult with an experienced bankruptcy attorney. The attorney can then give you an idea of whether you will qualify for Chapter 7 or Chapter 13 Bankruptcy. Then you can stop making the mortgage payments, if you haven’t already done so.
The mortgage company would then start the foreclosure process. That process varies in each state. In Illinois, it is a Judicial foreclosure state. That means that the mortgage company or bank needs to follow procedures in state court to foreclose on the house in order to take the property back from the owners. They need to get the judge to allow them to go through each step. This process can take from 8 months to 12 plus months, depending on the attorneys’ caseload, and the number of cases in the system. In the meantime, you can still live in the property until it is sold at the auction, without making any mortgage payments. If you are in a condominium or townhome, you still have to pay those dues, because if you do not, you’ll be evicted.
Once the house is sold at the foreclosure sale, or auction, you would be responsible for the difference, or deficiency. A deficiency of $50,000.00 would result if for example, the house sells for $100,000.00, but you owe $150,0000.00 to the bank. But, a bankruptcy filing would protect you from being sued for the difference. No matter when you file a bankruptcy case, you are protected from any deficiency. You need to be sure that you are guided through the process by an experienced bankruptcy attorney at all times.
Daniel J. Winter, Esq.
Law Offices of Daniel J. Winter
BankruptcyLawChicago.com
