Bankruptcy Blog - Housing

Filing the right kind of bankruptcy will often meet your goals better than a short sale of your home.

A “short sale” is a sale of your home at a price not high enough to pay the mortgage lender(s) in full. One or more of your mortgage lenders agrees to take less than their balance, to avoid being paid even less if the home is foreclosed. The number of short sales has skyrocketed because of shrinking home values and job losses leading to mortgage defaults. But a short sale can be much more difficult to pull off than you might think, and the benefits to you as a homeowner are sometimes inaccurate or exaggerated. In certain circumstances bankruptcy can be a better alternative. Or a bankruptcy can be done together with a short sale to improve your chances of it working and getting the result you want.

The protection you get from most creditors through the homestead exemption does not apply to some categories of creditors. We listed the most important of these categories in recent blog called The Homestead Exemption in Action. We said there that even though these special creditors can defeat the homestead exemption, they can still often be handled in a favorable way through certain bankruptcy procedures. That’s what we talk about here. Plus how sometimes owing money to these special creditors can even be turned to your advantage.

Last week’s blog introduced the Oregon "homestead exemption." We explained how to qualify for it, and the kinds of homeownership it applies to. This week we tell you how this important tool actually works, and how it protects your home from some creditors but not others. Then In the next couple weeks we will show how bankruptcy can effectively handle the creditors that could otherwise defeat the homestead exemption.

In our blog two weeks ago we talked about some of the most basic and important home-saving tools in Chapter 13:  1) the “automatic stay,” 2) curing mortgage arrearages, and 3) catching up on property taxes. In last week’s blog we talked about some of the more sophisticated tools that Chapter 13 may be able to provide for your home: 1) junior mortgage “strip-off,” 2) judgment lien “avoidance,” and 3) cure and release of income tax liens. This week we wrap up this series with a set of tactics that pull all this together. You might want to read the other two blogs before this one.

Chapter 13 bankruptcy helps you save your home with a set of different powerful tools. In fact so many that we will discuss just some of the most important ones here in this blog, and then more in next week’s blog.  As helpful as these home-saving tools are, they each come with conditions and limitations. Knowing these pluses and minuses helps you get the most out of a Chapter 13 case.

For the last two years many programs have been put into place to try to stem the tidal wave of foreclosures. The early efforts flopped for many reasons but mostly because banks and mortgage servicers had more incentives to AVOID doing mortgage modifications than to approve them. Mortgage servicers particularly receive many forms of additional fees through the processing and foreclosure of delinquent mortgages. This creates a huge disincentive for them to do modifications. There is some evidence now that the Obama Administration’s Home Affordable Modification Program (HAMP) is helping many more homeowners than earlier efforts. That’s because it at least directly addresses this problem by including some incentives to mortgage servicers to go through the trouble of processing modifications. But servicers’ fees continue to play a big role, and so anyone dealing with or considering a mortgage modification needs to understand them.

This summer the Oregon legislature unanimously passed and Governor Kulongoski signed into law a significant increase in the homestead exemption. In the meantime, during the last year or two home values have significantly decreased for hundreds of thousands of Oregon homeowners. These two happenings have created important opportunities for those who know about them.

Bankruptcy can in many situations be just the right tool for saving your home.

Even if you have filed for bankruptcy, unscrupulous collection agencies may still illegally attempt to collect on your discharged debts.

A former Republican U.S. Housing Secretary urged allowing bankruptcy judges to erase some mortgage debts.