Could you afford your home if you didn’t have to pay your other creditors or didn’t have to pay second mortgage payments?
This series of blog posts is about how to make better decisions about whether to sell your home and when, if you are under pressure from your creditors.
If You Really Shouldn’t Be in this House
You may in fact need to sell your home if it’s more house than you need, or its cost is way beyond your present financial abilities. Buying this house may have been a mistake that needs to be corrected. Or your circumstances may have changed so that now its way more of an obligation than your budget can handle. You may be looking forward to less financial pressure every month and know in your heart you need to sell and sell quickly.
Acting from Fear vs. Wisdom
There’s a lot of emotion involving a person’s home. That’s true if you are single living alone, and is amplified if you are living with a spouse or significant other, and especially if you have children living with you. Issues of responsibility, success, and success are tied into the “American Dream” of owning a home. There are also all kinds of practical issues like the neighborhood you live in, how far it is from your job, and where your kids go to school.
Considering how emotion- and ego-laden issues swirling around your home tend to be, it’s especially important to be very well informed about your legal options so that you can make rational, sensible, and indeed wise decisions about it. Your fears and impulses can easily be based on misconceptions about what you can and cannot do with your home-related debts and your other debts.
Keeping Your Home or Selling it Later
Again, you MAY indeed need to sell your home and do so as quickly as possible. But, if there are some sensible reasons why you would prefer to keep your home, or to sell it not now but months or years from now, there may be ways to do so. There may be tools that you weren’t aware of to accomplish your financial and personal goals involving your home.
Reducing Your Other Debt Expenses
There are countless misconceptions about what debts can or can’t be written off, or “discharged,” in bankruptcy. Some debts that generally can’t be—like income taxes or student loans—sometimes can. Some that can’t be in a Chapter 7 “straight bankruptcy”—like non-support debts to your ex-spouse—can be in a Chapter 13 “adjustment of debts.” Some debts that can’t be discharged in either kind of bankruptcy can be paid over a long stretch of time under Chapter 13, such as unpaid child or spousal support, or your first mortgage arrearage. Encumbrances now on your home’s title, such as judgement liens and income tax liens, can be addressed and removed in creative and often inexpensive ways. And as we’ll see in a moment, sometimes you don’t have to pay a second or third mortgage.
It simply makes sense to find out whether in fact there are legal mechanisms enabling you to keep your home permanently, or for a period of time until it’s the right time for you to sell.
“Stripping” Your Second (or Third) Mortgage from Your Home
One of the most dramatic ways that you may be able to lower the cost of keeping your home, and for improving your prospects for selling it later, is the mortgage “strip.” We spent an entire blog post last week describing how this works, so please read about it there.
In a nutshell, under Chapter 13, if your home is worth less than what you owe on it BEFORE your second (or third) mortgage, the debt on that mortgage can be turned from a secured to an unsecured debt. This means that you would not have to make the monthly payment any longer, and you would usually not have to pay much or even anything on the balance. At the end of your case the entire remaining balance would be written off permanently, and that mortgage would be “stripped” off your home’s title.
Consider what that could do for your ability to afford your home, and to sell it if and when you want instead of when you are feeling pressured to do so.