If you still have to pay the full amount of your mortgage then what would be the point of filing bankruptcy?

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If you still have to pay the full amount of your mortgage then what would be the point of filing bankruptcy?

My husband lost his job and there is no way to make our house payment and pay for basic needs. We want to save the house and was told we could do that by filing but from what I see you still have to make the full house payment so what would be the point? If I could do that I would not have to file. Are your house payments reduced for a certain amount of time?

Asked on January 3, 2012 under Bankruptcy Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

No, payments are not reduced for a certain period of time, though all collections activities, including foreclosure, will be "stayed," or temporarily halted, for a while, which may give you time to work through your financial challenges.

You are correct that you cannot stay in your home indefinitely without paying your mortgage; the bankruptcy does not eliminate the bank's security interest, so they can foreclose (after the temporary stay) if not paid. What bankruptcy does for you is:

1) If you're underwater on your loan, it prevents the bank from going after you for the remaining balance after foreclosure;

2) Since you have an absolute right to walk away from your home, letting the bank have the house while getting rid of the debt--and the last thing that banks want is *another* house to sell--it can give you leverage to negotiate a modification, partial foregiveness, a better payment schedule, etc. The bank does not have to agree to these things, but your ability to saddle them with a home may make them willing to talk.


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