Bankruptcy prior to foreclosure

[britestar969]

Hi my myficoians! I have a friend who's upside down in her home and wants to walk away from her house.  Should she allow the house to go into foreclosure before filing for bk7 or should she file now? Is it possible to file on the estimated net loss of the house and amend bk7 after final sale?? She has no other monthly bills besides car note, insurance etc?. She purchased the home for 107,000 and it is now appraising for 60,000.  What should she do?? 

[IOBA]

Why does she want to walk away?

Why does she want to file BK?

[britestar969]

IOBA, the house is not worth as much as she pd  for it. Really upside down. Pd 105,000 only worth 60,000 now. She was thinking about filing AFTER she goes into foreclosure and letting the house go.  Won't she be held responsible for the difference when and if the house goes into foreclosure?? Is that even possible??

[StartingOver10]

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@britestar969 wrote:

IOBA, the house is not worth as much as she pd  for it. Really upside down. Pd 105,000 only worth 60,000 now. She was thinking about filing AFTER she goes into foreclosure and letting the house go.  Won't she be held responsible for the difference when and if the house goes into foreclosure?? Is that even possible??

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Actually that is a very small amount to be upside down. If she is filing BK anyway because she has other debt she can't overcome, then naturally she should include the house in the BK.

If, however, she is only filling because of the house, then she really ought to do a short sale rather than file BK. The short sale would accomplish the same thing but be much less impact than either a f/c or a Bk.

If she is going to file BK, then it doesn't really matter if she files before or after they file for f/c. The bank will have to f/c even if she walks away and files BK. Her report will look slightly more clean if she files BK first before the LP is filed by the bank. If she gets successfully discharged from her BK then she won't owe the difference to the BK as the BK discharges her personal liability for repayment of the loan.

Is she the only one on the mortgage? Is she the only one on the deed?

[grassfeeder]

talk with an attorney......too big of a scenario, state laws may be specific.

[britestar969]

She's the only one on the deed.  The problem that I think she will have is not owing any other debts, so filing bk7 might not work in her favor since that is her only debt other than other household bills like car note, insuranc eetc.

[britestar969]

Well, will she still be held responsible for the difference from the short sale??

[StartingOver10]

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@britestar969 wrote:

Well, will she still be held responsible for the difference from the short sale??

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This depends upon her lenders approval of the short sale.

Sometimes the lender will give a full release of both the debt and the lien and other times they will give only a release of the lien. Many times the lender will release the full deficiency in exchange for a small payment by the seller. Each short sale is different. Does she have one mortgage or two?

Does she have an actual hardship? Or is she just walking because the amount owed is more than the market value at the moment?

Your friend ought to interview a couple of bankruptcy attorney's to get her specific situation figured out. Also she needs to interview several professional real estate agents regarding her specific short sale possibilities. Make sure the agents are experienced in short sale listings. There are a lot of variables even if her only debt is the mortgage.

[MovingForward_2012]

Has she considered filing a 13 and repaying the past due debt in the 13? She can keep her house that way.

[hrguy]

If she has no other debts, I would personally advise against BK.  BK stays for 10 years, where as the foreclosure will age off in 7.  It will essentially be the same effect on her score right away, but add 3 years of a negative remark sitting there after the foreclosure disappears.