The recession may be over, but millions of Americans are still struggling to keep their homes out of foreclosure. While bankruptcy is one common remedy, it’s not the best option for all homeowners. Today there are more options than ever for financially troubled homeowners.
Talking with the lender and trying to work out an agreement should be a homeowner’s first step, if they are falling behind on their mortgage or think they might have difficulty paying in the near future. Many lenders will work with homeowners to modify the payment schedule or the loan itself, particularly if the homeowner can show that they are making a good faith effort to pay. Because the recession was caused in part by the “housing bubble” and the mortgage crisis, the government has developed several programs to assist homeowners.
- For people who are not yet behind on their mortgage, the Home Affordable Refinance Program (HARP) may be a good option. HARP allows homeowners to refinance their loans at a lower interest rate, even if the value of the home has decreased. This can help to decrease monthly mortgage payments.
- The HOPE for Homeowners (H4H) program is being phased out, but it is worth noting. H4H allows homeowners who got variable rate mortgages before January 1, 2008 to refinance to a fixed rate.
- Homeowners who have suffered a financial hardship, like a job loss or increased medical expenses, may be eligible for relief under the Making Home Affordable Modification Program (HAMP).
If the homeowner is determined to maintain possession of the property, but is unable to negotiate an agreement with the lender (or is unable to adhere to the terms that were negotiated), and the homeowner does not qualify for any of the above government programs, Chapter 13 bankruptcy might be an option.
Unlike Chapter 7, Chapter 13 allows bankruptcy petitioners to keep property instead of liquidating it. As soon as a petition for Chapter 13 bankruptcy is filed, an automatic stay stops any foreclosure proceeding that has not already resulted in a sale. The petitioner works with the court to develop a repayment plan whereby past-due payments are made up over a 3 to 5 year period. During the repayment plan period the property owner must make all their regular mortgage payments that come due in addition to the back payments. If the property owner fails to make the back payments or the current payments the lender can foreclose unless the court orders otherwise.
A home is most often an individual’s most cherished possession both in terms of financial investment and emotional ties. It’s no surprise that many would go to great lengths, including bankruptcy, to save this property but given the long-last and far-reaching implications of bankruptcy, other remedies should be carefully considered.
In some cases, a homeowner may find that given post-recession housing prices, he or she may no longer be able to afford the mortgage. In these cases, selling the house and moving on, despite the financial and emotional loss, may be the best option. If you’re having problems making your monthly mortgage payment, you should consult with an experienced bankruptcy attorney who can help you identify your options and pursue the one that will best help you achieve your long-term objectives. |