TO KEEP OR NOT KEEP YOUR HOME

Should you keep your home? For many people who decide to file bankruptcy, this is a major decision. This can also be a very emotional decision. In bankruptcy, it is imperative that you remain objective when evaluating your options. Your attorney will advise you on the legal issues, but only you can make the final decision as to whether or not it is worth it to try and keep your home. When doing so, it may be helpful to consider the following points:

 

a.             Do you have equity in your home?

Equity in your home is the cash value of your home to you right now. You can estimate your equity in your home by this simple formula:

Equity = current market value of your home - total current balances of all your mortgages

If the value of equity is equal or less than 0, then you have no equity in your home. This situation is not uncommon these days.  While your mortgage has only decreased by the amount of principal paid in, the market value of homes in Chicago has dropped nearly 30% from its peak (FN1).  

 

b.        Can you afford to keep your home?

When you are evaluating whether you can afford to keep your home, you must be brutally honest with yourself.  You must be realistic in estimating your expenses; both the direct expenses of home ownership (mortgage payments, real estate taxes, utilities...) and your everyday living expenses (food, gas, insurances...).  In order to save their homes, people often make unrealistic estimations of these expenses in order to create a plan that looks viable on paper.  Like plans for losing weight, it is critical for you to be realistic about the level of "sacrifice" you can live with or you are doomed to fail.  Sometimes it makes more sense to surrender your home, eliminate your debts, save your money and purchase another home in the future.

 

c. How might a Chapter 13 help me keep my home?

Filing a Chapter 13 bankruptcy will enable you to keep your home in several ways. First, Chapter 13 will stop any pending foreclosure on the home and put you in a plan over 3-5 years to catch up your past due mortgage payments, along with dealing with any other debts you may have.  Second, depending on the value of your home, a second mortgage or home equity line of credit may be stripped off and discharged in a Chapter 13.  Finally, you can use the bankruptcy as leverage to try and convince your mortgage company to negotiate a long-term loan modification.

 

The above list is not exhaustive, but it gives you a good starting point to think about your decision to keep your home.  Most importantly, everybody's situation is unique.  Meet with a qualified attorney to discuss the specific options that may be in your best interest.

 

FN1: Source: S&P/Case-Shiller Home Price Indices: 2010, A Year In Review.

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