Many Tennessee residents have faced financial hardships and have had to make some difficult decisions because of them. Filing for bankruptcy is something that should not be taken lightly, but many people have gone down that path in order to make a fresh start on their credit without considering all factors. Even after filing for Chapter 13 bankruptcy, some homeowners have had to make decisions about whether or not to keep their homes. They may become unable to keep paying on the mortgage and walk away from the home. Is this possible?
Yes, it is possible to allow the bank to foreclose on a home while it's in bankruptcy; however, it's not a decision that should be done on the spur of the moment. It's important to think this through carefully because once the house is in foreclosure, it's hard for the homeowner to get it back.
First, determine the reasons for the bankruptcy. Most people will file for Chapter 7 bankruptcy if their mortgage payments are current. Someone who has fallen behind would most likely file for Chapter 13. Therefore, someone who cannot keep up with the past and current payments would likely want to walk away.
It is also a good idea to see if the bankruptcy can be converted to Chapter 7. Chapter 7 offers more debt relief, but a person must meet income requirements. If a person earns too much money, then Chapter 13 may be the only option.
A person can simply stop making the mortgage payment and after several months, the lender will remove the home from bankruptcy and put it into foreclosure. This process can take a while, so a person wouldn't have to move out of the home right away. It's not the best choice to make in any situation, but sometimes when the debt is too extreme, it's unfortunately the only viable option.
Dealing with financial problems is not an easy time to go through. It can be more challenging when a person is struggling so badly and would desire a quick fix to erase the debt. Those seeking to file for bankruptcy should understand they have various options and should determine what one is most suitable for them.
Source: FOX Business, "Can I Walk Away From Home in Bankruptcy?," Justin Harelik, Dec. 11, 2013