Can I walk away from the home I included in my Chapter 7 years ago or do I have to sell the house?

UPDATED: Sep 30, 2022

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Can I walk away from the home I included in my Chapter 7 years ago or do I have to sell the house?

I was discharged 7 years ago and my home was included. I now want to purchase a new home but need to get rid of the home that was included in the bankruptcy. I have been living in this home since the bankruptcy and making payments but the homes value is not worth what I owe on it. What are my options to purchase a new home and get rid of this one quick?

Asked on April 2, 2016 under Real Estate Law, Missouri


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

1) Walking away from it will not discharge your obligation on the mortgage; since you kept paying post bankruptcy, you reaffirmed the debt and are obligated on it. This will not help you: even if the bank forecloses, the loan will still be on your credit and you will have to pay any balance not paid off when they sell the home in foreclosure.
2) The only way to get this off your credit and to have lenders not consider it in deciding whether or not to lend to you is to pay the mortgage off (including by, for example, selling it for whatever you can get, applying the proceeds the mortgage, then paying the balance yourself).
3) You can apply to your lender for a "short sale"--see if they will agree to let you sell the house for less than the current principle balance *and* accept the proceeds as payment in full of the debt. If they do this, it will take care of the loan. They don't need to agree to do this, but might, since it will get them a large portion of the money right away and avoid the risk you will default and leave them with home worth less than the loan.
4) Even if the home is worth less than the mortgage, if your monthly payments are equal to or less than what it would cost rent comparable space, you could look at this as you getting a good place to live and, in the future, will likely get some equity out of it, too (eventually, the loan will be paid down enough, and/or the market will rise enough, that you can sell and make some money).

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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