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Arizona Bankruptcy and Homes

Posted by attorney Alexander Fasching

Homestead Exemption in Bankruptcy

The exemption for a homestead in bankruptcy is $150,000.00 If you have more than $150,000.00 in equity in your house, or are upside-down in your house, consult an attorney to discuss your options.

Your House in Bankruptcy

Q: I am late in my mortgage payments, can bankruptcy help me? A Chapter 7 would require that you come current with the payments in order to keep your house. Often, people who are late on their mortgage opt for a Chapter 13 bankruptcy because of the benefits that it offers. In a Chapter 13, you make monthly payments based on your income, certain bills you need to repay and certain non-exempt items you are keeping. If you have missed $6,000 in mortgage payments, you would merely pay about $100/month for 60 months to make up the missed amount. Q: My house is worth a lot less than when I bought it, can bankruptcy help me lower my payments? Possibly. Currently, the bankruptcy laws allow judges to reclassify completely undersecured mortgages as unsecured, which then get discharged in a Chapter 13. If the first mortgage on your house is worth one dollar more than your house is worth, then the junior mortgages are completely unsecured and can get discharged. The judge cannot change your payment amounts, or the terms of your mortgage but, by discharging your second mortgage or HELOC, your payment may be significantly less.

Foreclosure Options

Loan modification If you're intention is to retain your home and you do not wish to file a Chapter 13 bankruptcy, you may want to contact your lender for a loan modification or repayment plan. Please note that many loan modification requests fail. You can negotiate with your lender to lower your interest rate (for a specified time period or the entirety of the loan), increase the term of your loan, or reduce the principal. Please note that principal reduction is rare. If a loan modification is not available, you may want to negotiate a repayment plan for any arrears you have incurred on your mortgage. Short sale A short sale may be advisable if you want to sell your home but you owe more than what it is worth. This involves listing our home for sale for less than your loan balance and negotiating with your lender(s) to approve the sale once you find a buyer. In certain situations, you may be liable to repay the difference between what you owe your lenders and the sale price of the home. This is called a deficiency balance. Also, if the home is a second home or investment property, there may be tax consequences after completing a short sale. Deed in lieu of foreclosure A deed in lieu of foreclosure may be advisable if you just want to give the house back to the lender. A deed in lieu of foreclosure involves executing a deed transferring the property back to the bank. Sometimes lenders are unwilling to agree to a deed in lieu of foreclosure since the lender assumes certain liabilities (such as liens) that the homeowner has incurred during the course of his or her ownership. Also, lenders are unlikely to agree to a deed in lieu of foreclosure if there is a second mortgage, tax lien or other encumbrance on title. This option is better than foreclosure since your credit is not damaged to the extent it would be had the bank been forced to foreclose and sell your home at auction. Bankruptcy A bankruptcy may be able to help you save your home. Also, if you have other debt that you are having difficulty with, bankruptcy may discharge that, too. If you desire to retain the property then a Chapter 13 bankruptcy may be your best option. A Chapter 13 allows you to repay your mortgage arrears over a period of 36 to 60 months. In addition to repaying the arrears, you must also pay your ongoing mortgage payment. With a Chapter 13, you may be able to discharge a second mortgage or HELOC in certain circumstances. If you desire to surrender the property and you qualify, Chapter 7 will allow you to discharge a second mortgage, line of credit, etc. Chapter 7 also would allow you to discharge other debt such as credit cards, medical debts, etc.

How to Strip a Second Mortgage / HELOC

Just because your house has dropped in value, doesn't mean that you need to lose your house if a "loan mod" isn't offered to you. Were you aware that in certain situations a second mortgage can be discharged in bankruptcy? It can if all the following are true: - You file Chapter 11 or Chapter 13 - The value of the home is less than the first mortgage amount. - You complete the plan and make all payments

Determine the current value of your home The following would be acceptable: - A recent appraisal - A comparative mortgage analysis from a realtor - A broker's price estimate from a realtor - appraisal (although these tend to give values from a few months ago rather than current value)

Determine if you qualify for bankruptcy Obviously consulting an attorney is one of the best ways to determine if bankruptcy is an option or how feasible it is. People with extremely high income may not benefit much from even stripping a second mortgage off. Also, low income individuals may not have enough income to make the required payments in a Chapter 13 plan. File for bankruptcy There may be a lot of benefits to filing bankruptcy but there are also detriments to doing so. Contact an attorney to discuss your options.

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