Yes, there could be 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 past due mortgage payments. Most people do not have thousands of dollars to give to their mortgage company.
Bankruptcy is one way of stopping foreclosure, but a non-bankruptcy alternative to foreclosure might work too.
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.
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.
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 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 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
Your 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.
For Chapter 13 bankruptcy, you may want to understand the all-in costs and the timeline. Below is a Chapter 13 calculator that will help you estimate your Chapter 13 monthly plan payment.
Check out our article “Chapter 13 Bankruptcy: Everything you need to know” if you are struggling to make your mortgage payments.
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.
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 the 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 wellbeing in the future.
What Should You Do?
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, and we will do our best to point you in the right direction.
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.