SURRENDURING YOUR HOME IN BANKRUPTCY


SURRENDURING YOUR HOME IN BANKRUPTCY.

 

Kentucky Mortgage after a bankruptcy, foreclosure, short sale approval

by: Tracy L. Hirsch, Attorney

One of the hardest decisions a family has to make is deciding to surrender their home in a bankruptcy proceeding. Often times, this means allowing a home to go through the foreclosure process and discharging their mortgage obligations in a Chapter 7 bankruptcy. Many homeowners are concerned about the foreclosure process and their obligations to their mortgage company once their bankruptcy process is complete.

Often times, when a person chooses to surrender their home in bankruptcy, he is in the middle of the foreclosure process. Filing a bankruptcy petition creates an automatic stay, which puts an immediate halt to the foreclosure process. The mortgage company may then choose to either file a motion with the court to re-start the foreclosure process (called a motion to terminate the automatic stay) during the 90 days of the Chapter 7 process or wait until the Chapter 7 isis discharged to initiate the process again. Either way, foreclosure is a long, legal process and it often takes anywhere from four to eight months for the house to be sold at the foreclosure sale. Regardless of when the bankruptcy is complete, the home still belongs to the homeowner until the home is sold at the commissioner’s sale.

In order to understand why bankruptcy may not be immediately necessary in order to get out from under a mortgage, one needs to understand how the foreclosure process works. In most states, including Kentucky and Indiana, creditors are required to utilize a process called judicial foreclosure. The way it works is this. Once there has been a default, the creditor initiates the foreclosure process by filing a Complaint in the Circuit Court of the county where the property is located. The creditor must then obtain service of the Complaint on the debtor in a manner permitted by law. Once service has been obtained, the debtor then has 20 days to answer the Complaint. The purpose of this is to allow the debtor to assert any defenses that he may have. If the debtor fails to file an Answer to the Complaint, then the creditor gets a default judgment.

After obtaining a default judgment against the debtor, the creditor may then proceed to obtain a sale date. Normally it takes at least 4 months or longer from the time of service of the Complaint until the sale date. On the sale date, the property is auctioned off at the courthouse to the highest bidder. The proceeds of the sale are then credited to the loan, and what is left over, referred to as the deficiency balance, is what the debtor owes the creditor.

If the property sells for enough to cover the balance of the loan, then there is no debt that is owed by the debtor. So until such time that the property actually sells at foreclosure, it is impossible to know for sure how much the debtor will actually get stuck with. So if you owe $150,000 on your mortgage, this does not mean that you personally are on the hook for that amount. If the house sells for $140,000, then you only owe the $10,000 difference.

So before you decide that you need to file bankruptcy solely because your home is going into foreclosure, you may want to wait and see what the outcome is from the foreclosure sale. You may owe less than you think. Now if you have other reasons for filing bankruptcy, such as credit card or medical debt that you can’t pay, then it makes sense to go ahead with the filing. But if it is all about your mortgage, you may want to wait and see what the damages are before pulling the trigger on a bankruptcy filing.



The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only.  The posted information does not guarantee approval, nor does it comprise full underwriting guidelines.  This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the views of my employer. Not all products or services mentioned on this site may fit all people

 

http://www.mylouisvillekentuckymortgage.com

 

Advertisements

6 thoughts on “SURRENDURING YOUR HOME IN BANKRUPTCY

  1. Pingback: SURRENDURING YOUR HOME IN BANKRUPTCY | Kentucky FHA Mortgage Loans

  2. Pingback: SURRENDURING YOUR HOME IN BANKRUPTCY | Kentucky First Time Home Buyer Mortgage Loan

  3. Pingback: SURRENDURING YOUR HOME IN BANKRUPTCY | Louisville Kentucky Mortgage Loans

  4. Pingback: SURRENDURING YOUR HOME IN BANKRUPTCY – Louisville Kentucky Mortgage Loans

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s