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Keeping your home after bankruptcy

Homeowners who have fallen behind on mortgage payments and are facing foreclosure have also likely fallen behind on others bills. Many families have experienced financial hardship and have found relief in bankruptcy. When considering bankruptcy, many worry about losing the family home during the proceedings. There are options, however, that allow homeowners to remain in their home even after getting debt relief through bankruptcy.

The newly expanded Home Affordable Refinance Program is an option that allows millions of borrowers to refinance their mortgages. Homeowners can get lower rates even if they owe more on the mortgage than their house is currently worth. However, the loans must be held by Fannie Mae or Freddie Mac, which accounts for about half of the mortgages in the United States. Also, the program is only an option for those who have not fallen behind on payments in the past six months.

Homeowners who do not qualify for HARP may consider filing bankruptcy. Bankruptcy is not a process to undergo on a whim and is best done with the assistance of a professional. A qualified local bankruptcy professional knows bankruptcy laws in their area of practice. Bankruptcy laws vary by state and sometimes by county. Going through the process unguided may result in stress, headaches and unintended consequences.

Most people who file for bankruptcy choose either Chapter 7 or Chapter 13. In Chapter 7, assets are liquidated and nonexempt assets are sold by a court-appointed trustee. A house could be considered a secured debt and liquidated. If the house is being foreclosed, proceedings are stayed until the bankruptcy process is completed. If the house is not lost in Chapter 7, it can still be foreclosed after the fact.

The best option for a homeowner who wants to file bankruptcy and keep their home is to file Chapter 13 bankruptcy. The court approves a repayment plan over the course of three to five years which may include a mortgage loan modification. If there are two liens on a home, the second one may be fully discharged. By filing for Chapter 13 bankruptcy, a homeowner can remain so and emerge with a fresh start.

Source: Forbes, "Going Bankrupt in 2012, but Keeping Your Home," Philip van Doorn, Dec. 8, 2011

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