Can I keep my home if I file bankruptcy?

I have fought to keep my home and now they are foreclosing and will not take any payments. My friend suggested bankruptcy.

Asked on May 30, 2012 under Bankruptcy Law, Colorado

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Bankruptcy will not let you keep your home forever unless you can pay your mortgage, which is not to say that it doesn't offer you some advantages or benefits. Bankruptcy will delay any collections or foreclosure efforts, due to what is called the "automatic stay"--that will buy you time, which can itself be very helpful.The automatic stay, though, is not permanent; after some number of weeks or months, it will lapse, or specific creditors can get themselves exempted from it.

With secured debts, or debts where there is property providing collateral for the loan, which can be foreclosed upon or repossessed (like a mortgage), while bankruptcy can discharge the underlying debt, it does not terminate the security interest. That means that while the lender cannot sue you for the balance owed, it still has the right to take the property if you have defaulted. Therefore, while you can protect yourself personally from the debt, you cannot stop the lender from foreclosing on your house unless you pay your mortgage. Otherwise, your default will allow them to exercise their security interest and foreclose on your home.

What you have to do to keep the home, therefore, is to "affirm" the mortgage--agree to keep paying it. It is voluntary on your part to affirm; as long as you're willing to risk losing the home, you can't be made to affirm.

Where bankruptcy can help you--besides the fact that the temporary delay, or automatic stay, will buy you time that may let you save money, put your financial affairs in order, etc.--is that the bankruptcy gives you leverage: after all, you have the right to walk away from your home and the debt. Since the last thing a bank wants now is yet another foreclosed home, they'd much prefer that you keep the house and pay them money. Therefore, you can use the leverage provided by your threat to not affirm the debt (your threat to walk away) to possibly get the bank to modify the loan, reduce the interest rate, or otherwise reduce either your total owed and/or your monthly payments--while the bank won't give the shop away, so to speak, they do have to make it worth your while to affirm.


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