Written by Ben Tejes
Updated Oct 11th, 2023
This article is for informational purposes only. Ascend does not provide legal advice, and are not attorneys. If you'd like to speak with a bankruptcy attorney that serves your city, you can speak with one in a free consultation.
You may have reasonable foreclosure
alternatives to bankruptcy to save your home from foreclosure. While it is easy to get behind on your mortgage payments, it can be very difficult to catch up on past due mortgage payments. Most people do not have thousands of dollars to give to their mortgage company.
Options When You Are Not Behind on Mortgage
Let's start by going through some options when you are not behind on your mortgage, but realize that you may be going behind soon.
Refinance Your Mortgage
If you are struggling to make your mortgage payments, but you are not behind on the payments, a mortgage refinance might work. A refinance pays off your mortgage in full with a new loan. If you have owned your home for a few years, stretching out the current mortgage payoff to a new 30-year mortgage might lower your mortgage payments and allow you to keep your home.
Depending on your credit score and overall financial situation, you may or may not qualify for a refinance. If you do qualify for a mortgage refinance, be aware that you will pay more in interest by stretching out the amount owed over a longer term. You may also have a higher interest rate if your credit score has dropped since you purchased the home.
Forbearance Agreements
A forbearance agreement may allow you to pay a lump sum to the mortgage company for part of the past due payments. You then pay your regular mortgage payments plus an extra amount each month until your mortgage is caught up in full.
Loan Modification
Some mortgage companies may agree to a mortgage modification that allows you to extend the term of the mortgage. By extending the term of the mortgage, you can catch up on the past due to payments at the end of the mortgage. By extending the term of the loan, you pay more money in interest payments to the mortgage company.
A mortgage modification may also change other terms of the loan. The lender may agree to forgive the past due to mortgage payments or reduce the interest rate. In some cases, a loan modification may involve several changes to the original mortgage terms to make the payments affordable for the homeowner.
The loan modification process can be lengthy and time-consuming. Contact your mortgage company as soon as possible to discuss options for modifying your mortgage loan. You may be required to submit a detailed loan modification application with documentation related to income and expenses.
Your Options When You are Behind on Your Mortgage
You have options even if your mortgage is behind.
Filing Chapter 13 Bankruptcy to Stop Foreclosure
Filing
Chapter 13 stops foreclosure. A Chapter 13 bankruptcy case can help you keep your home by spreading out your past-due mortgage payments over several years in a bankruptcy repayment plan. As long as you continue making your Chapter 13 payments and your regular mortgage payments, you can prevent foreclosure with bankruptcy.
Use the Chapter 13 monthly payment affordability calculator below to estimate your Chapter 13 plan payment if you are struggling to make your monthly payments and want to see whether Chapter 13 could help you.
Deed in Lieu of Foreclosure
Let's say you are not able to afford your home. In this example, your lender may agree to a deed in lieu of foreclosure. A deed in lieu transfers the home to the mortgage holder to satisfy the loan. The deed avoids the need for a foreclosure action.
Some lenders prefer a deed in lieu because it avoids the cost of a foreclosure action. The benefit to you is that you avoid a foreclosure on your record. Your lender may even agree to pay a small amount to you for signing a deed in lieu of foreclosure to help with moving costs or allow you to rent the home while the house is on the market.
Sell Your Home:
I know it’s a difficult thing to think about, but sometimes, the best option is to sell your home. If you would make money, or even break even, if you sell your house, it’s a really good option to consider. Perhaps you could even purchase a house that is more in your price range, or even rent a house while you get back on top of your finances. Either way, selling your home allows you to not have to go through foreclosure, something that can drastically change your credit and reputation.
Short Sale:
Short selling your home means selling your home for less than what you currently owe on the house. Because a lot of houses that go to auction aren’t sold for their appraised price, some banks and lenders will agree to a short sell of your home.
What Happens if I Ignore the Past Due Mortgage Payments?
Ignoring the problem will not make it go away. Your mortgage company could begin the foreclosure process the first month you fail to make a mortgage payment. In reality, most mortgage lenders wait several months before hiring a foreclosure attorney. However, you cannot assume a mortgage company will wait a certain length of time before beginning the foreclosure process.
You are served with notice of the foreclosure proceedings. It includes a deadline to respond to the foreclosure after the foreclosure action is filed. If you fail to respond to the foreclosure, the judge will likely enter a default order. The default order grants the mortgage company’s request to sell the home at a foreclosure auction. If your state allows non-judicial foreclosure sales, you could have a shorter time to vacate the home.
Facing the problem and choosing a bankruptcy or non-bankruptcy option for dealing with foreclosure is strongly recommended. Losing your home may be devastating, but if you face the problem, you can choose an option that gives you the best chance of rebuilding your financial well-being in the future.
Should You File Bankruptcy to Stop Foreclosure?
Each situation is different, so you are the best person to make the decision of what you should do. Feel free to reach out to us if you have any questions related to this article or related to foreclosure. Often the best solution may be to have a
free bankruptcy consultation with a local bankruptcy attorney who specializes in Chapter 13s, and we can definitely help you find one in our
bankruptcy attorney network.
You can also take one of our debt relief calculators such as the Chapter 13 calculator above to help you compare your debt relief options.
