If you are in arrears on your mortgage and no means to catch up is apparent, then Chapter 13 bankruptcy may be your best option. Bankruptcy carries long lasting consequences, however, so think carefully before committing to this life-changing action and confer with one of Colorado Springs bankruptcy lawyers to see if you qualify for Chapter 13 under the new bankruptcy reforms enacted in 2005.
Chapter 13 is also known as the "Wage Earner Plan" or "Reorganization Plan" in that it will allow you to stay in your home and pay off your arrearages over a length of time far longer than you probably could have negotiated with your lender on your own. However, you must also be able to make your current mortgage payments at the same time. Given that you can financially handle this, at the end of the bankruptcy period you will be free of the arrearage debt and have kept your home.
A Chapter 13 bankruptcy petition will also absolve you of any second or third mortgages you might have on your home. Your first mortgage is secured by the entire value of your home. If the value of your home has dropped significantly, then there will be no value left over to secure the second or third mortgage. As a result, the bankruptcy court will classify these other mortgages as "unsecured debt". And, unsecured debt is last in line to be paid off in a Chapter 13 filing and maybe discharged, leaving you owing nothing on them.
Once, borrowers were responsible for any tax losses incurred by the lender as a result of foreclosure. But, thanks to a new law that took effect in 2007, you are no longer responsible for those losses. However, you will not be protected from those taxes if the additional mortgages were not used for improvements to the securing property or if those loans were secured by other property, such as a second home. Colorado Springs bankruptcy lawyers are familiar with these new laws and can help you know if your property qualifies.
Chapter 7 to The Rescue? Maybe Not.
If you qualify, a Chapter 7 bankruptcy will erase any of the above tax liability problems if you default on your mortgage and any secondary mortgages. But Chapter 7 is an extreme step and can create additional problems. Under the new bankruptcy reforms, qualifying for Chapter 7 is subject to some restrictions and Colorado Springs bankruptcy lawyers can assist you in determining your eligibility.
For instance, even if the amount you owe on your mortgage is discharged, a foreclosure can still proceed. Why? Because, when you bought your home, you signed two documents - one was a promissory note that indebted you to pay the mortgage and the other was an agreement that could be recorded as a lien in the event you failed to make your payments. So, by this time in your difficulty, your lender has probably already recorded this second document as a lien against you. And, even if the Chapter 7 discharges your debt, it has no effect on this lien so you will probably have to relinquish the house anyway as it was the collateral for the mortgage note.
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When faced with the possibility of bankruptcy, Colorado Springs bankruptcy lawyers can help get your financial situation back under control.
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