Submitted by Rachel R on Thu, 08/07/2014 - 1:09pm
Why you should stay in your home even if you can't pay your mortgage
Image source: Flickr Creative Commons User Diana Parkhouse
If you can't afford to pay your mortgage payments and know you won't be able to get caught up, bankruptcy can be an excellent way to shed that debt, related debts and unsecured liabilities so that you can get a financial fresh start. But it's important to know that even if you stop making mortgage payments, you should absolutely not move out of your house. If you move out sooner than is wise, you can end up getting yourself in much worse financial trouble.
How Mortgage Differs from Rent
If you stop paying your rent, it's a pretty simple matter for your landlord to evict you and they can do so with minimal notice. But because you're the property owner, you will have a much more flexible time frame. Your lender doesn't own your home, they simply have rights to it as collateral for your loan. When you don't pay your mortgage payments, the lender files a foreclosure.
This triggers a sale of your home to satisfy the debt. What usually happens is that it's the lender that buys the home at the sale if the home has some value. Once the home sells at the foreclosure auction, there is a new property owner and it is up to them to serve you notice of eviction. This entire process can take months or even a year or more and leaving before you have to is a risk.
Don't Leave Your Home Until the Last Moment
If you leave before your home has gone through foreclosure and the new owner (the bank or someone else) has demanded that you leave the property, you can still be liable for what goes on there. If you have a homeowner's association, they can charge fees if the property isn't kept up to community standards and some municipalities assess fines for overgrown yards or homes in disrepair.
By staying in your home, you can make sure it's kept up and that there are not fines accumulating. Not only that but because you're not paying your mortgage and not paying rent on a new place, you can sock money away for a deposit on a rental home or apartment, moving expenses and utility deposits. You may want to go ahead and pay your homeowner's association fees, though, even if you're not paying the mortgage so they don't try and get a judgment and put a lien against your bank account.
Why It's Wise to Postpone Bankruptcy Until After Foreclosure
Some consumers that are behind on their mortgage payments will file bankruptcy to try and stop foreclosure, but if you can't afford your house, you're just postponing the inevitable. But here's the kicker, if you file bankruptcy, that will postpone the foreclosure and impact the debts that you've already amassed.
But debts associated with your home, like homeowner's association fees, that continue to amass after your bankruptcy but before the foreclosure will not be covered by the bankruptcy so you will end up out of your home eventually and with a pile of debts that you won't be able to escape because you can't file another bankruptcy until after a significant waiting period.
To find out more about bankruptcy, foreclosure and the best timing to file a Chapter 7 or Chapter 13, contact the North Carolina bankruptcy experts at the law offices of John T Orcutt for a free consultation on your debt dilemma.
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