What to do if I went through a Chapter 7 that was discharged over 2 years ago but I can no longer afford my mortgage payments?

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What to do if I went through a Chapter 7 that was discharged over 2 years ago but I can no longer afford my mortgage payments?

t that time I did not reaffirm my 1st or 2nd mortgages, but have continued making the payments on time. I currently have a substantial loss to my income (and will for the foreseeable future) and will no longer be able to afford my payments. I’m wondering if it’s better to do a short sale (it’s highly unlikely I will get what I owe on the house when I sell it), or to surrender it through a deed in lieu of foreclosure. Will a short sale have tax penalties? Which option is better for my credit?

Asked on May 12, 2015 under Bankruptcy Law, Nebraska

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

1) You can't surrender the property unless the lender is willing to take it--that is, you can't force them to accept it, and moreover, unless they specifically agree to accept the property as satisfaction in full of the debt, they could take the property and, if it is underwater, sue you for any remaining balance.

2) Similarly, while you always have the right to sell your property for less than the current loan amount, you'll then be liable for the remaining balance of the loan unless the lender agrees to foregive.

In short, you cannot effectively make the decision as to what to do about the property unilaterally--you need to consult/negotiate with your lender about your options.

3) Both will hurt your credit badly. Since the credit-rating agencies keep their formulas close to their vests, it's impossible to say precisely what the effect of each option will be.


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