Should she walk away from her mortgage or file bankruptcy? 12 Answers as of May 25, 2011

A relative’s only income is a small amount of SS, is in bad health, currently in hospital, and can no longer afford to pay her mortgage. The home is in extremely bad condition, probably not worth the amount of mortgage. What happens if she stops making monthly payments? Is there a penalty? She wants to move out of the house into affordable housing. Chose bankruptcy but does not want to declare BK?

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The Law Office of John T. MacDonald Jr., PLLC
The Law Office of John T. MacDonald Jr., PLLC | John MacDonald Jr.
If she fails to make the monthly mortgage payments the mortgage company will eventually foreclose on the property. At that point, the mortgage company will begin the foreclosure proceedings by giving notices and eventually leading to evicting anyone still living in the property. It is best to contact a bankruptcy attorney. Attorney John MacDonald is a bankruptcy attorney in Lansing Michigan who helps individuals facing foreclosures or financial difficulties.
Answer Applies to: Michigan
Replied: 5/25/2011
Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
It depends on the mortgage and what state you are in. For example, in California if the loan was a purchase money loan (and it was never refinanced) - that is a "non-recourse" loan, meaning the lender can not come after her. In some states purchase money loans are "recourse" loans, meaning the lender can come after her for the difference between what she owes and what it sold for. As a practical matter, if her only income is social security..... there is nothing the lender can do to her. She is what we call "judgement proof." They can not take her social security away from her.
Answer Applies to: California
Replied: 5/25/2011
Burnham & Associates
Burnham & Associates | Stephanie K. Burnham
Stopping payments on a mortgage will likely result in the home being foreclosed upon. Once foreclosure is completed, the property is then put on the market for sale. If the mortgage company is able to sell the property the previous owner is liable for any deficiency in the sale price: that is, the remaining portion of the mortgage that is not paid by the sale price. If the mortgage company chooses to forgive this debt, then the mortgage company will issue a 1099 at the end of the year for that deficiency. Currently, the Government has elected to forgive the tax liability created by these 1099s, but that may not continue next year. If Bankruptcy is filed, the debt is discharged before it becomes a tax liability (IRS tax liability is NOT dischargeable in Bankruptcy). Bankruptcy is an option, and if she is not covered by medical insurance to pay her hospital bills, she may want to consider including the medical debt in her bankruptcy.
Answer Applies to: New Hampshire
Replied: 5/25/2011
Indianapolis Bankruptcy Law Office of Eric C. Lewis
Indianapolis Bankruptcy Law Office of Eric C. Lewis | Eric Lewis
Bankruptcy would likely be the best route to go so that they don't sue her and make her come into court for numerous hearings. Social security is exempt from seizure by creditors, in or out of bankruptcy but without bankruptcy protection, the bank can force foreclosure and depending on where she lives, the bank may be able sue to her for deficiency on the mortgage after it is foreclosed.
Answer Applies to: Indiana
Replied: 5/25/2011
Bankruptcy Law office of Bill Rubendall
Bankruptcy Law office of Bill Rubendall | William M. Rubendall
If she wants to give up the house it is not necessary to file bankruptcy. Unless there is a re-financed loan a foreclosure will relieve her of what is owed. However, there could be complications depending on further facts. Consult an attorney regarding details.
Answer Applies to: California
Replied: 5/25/2011
    Greifendorff Law Offices, PC
    Greifendorff Law Offices, PC | Christine Wilton
    If the mortgage is her only debt issue, then a deed in lieu, short sale or foreclosure is her best remedy. If she stops paying on the mortgage, she will have anywhere from 6-9 months to move out. If she has a second mortgage, she should consider bk because that debt, once removed from the house by eliminating the lien, becomes a personal unsecured debt owed by her. If she does not intend to buy another home and does not care about credit at this stage of her life, then just about any option will be fine. Feel free to call us for a reputable referral to a realtor for a short sale or deed in lieu.
    Answer Applies to: California
    Replied: 5/25/2011
    Law Offices of Michael T. Krueger
    Law Offices of Michael T. Krueger | Michael Krueger
    Walking away from a home is the worst choice in the eye of the credit reporting agencies and lending institutions. If she wants to walk away from the home she should try to negotiate a short sale first. If the short sale is unsuccessful she should surrender the property through bankruptcy. This is important because if she refinanced the home and the home sells at auction for less than the refinanced amount your relative will be faced with a tax liability for the forgiveness of debt. If she surrenders the home through bankruptcy she can claim the IRS Form 982 exemption and avoid any tax liability.
    Answer Applies to: California
    Replied: 5/25/2011
    Bankruptcy Law Office of Robert Weed
    Bankruptcy Law Office of Robert Weed | Robert Weed
    If all she has is social security, then just moving out and doing nothing probably works fine. First mortgages rarely sue after foreclosure in some states they can't. And even if they do, they cannot garnish her social security. So there's nothing they can do.
    Answer Applies to: Virginia
    Replied: 5/25/2011
    Ursula G. Barrios Law
    Ursula G. Barrios Law | Guillermo Machado
    Wait and see without filing BK. If anti-deficiency laws apply, no need for BK.
    Answer Applies to: California
    Replied: 5/24/2011
    Financial Relief Law Center
    Financial Relief Law Center | Mark Alonso
    She may want to look into a short sale as it may give her the best benefit of moving out of the property, mitigating the loss on her credit and avoiding BK. This assumes there would be no other benefits to filing BK, like credit card debt or medical bills that could be discharged in the BK.
    Answer Applies to: California
    Replied: 5/24/2011
    The Law Office of Mark J. Markus
    The Law Office of Mark J. Markus | Mark Markus
    If her only income is social security and she has no other assets (aside from the home) then she can just let it be foreclosed on and not worry about it, especially if she has no other debts. There may be a deficiency after foreclosure depending on the amount and type of liens against the home, but it's really a non-issue if the facts are as I just described. To make it even "cleaner" she can work with the bank to do a deed in lieu of foreclosure.
    Answer Applies to: California
    Replied: 5/24/2011
    Saedi Law Group
    Saedi Law Group | Lorena Saedi
    If the relative's only source of income is SSI and she is giving up her home then there is no need for her to file for bankruptcy. SSI benefits cannot be garnished so even if a creditor obtained a judgment against her they could not garnish her SSI.
    Answer Applies to: Georgia
    Replied: 5/24/2011
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