Nevada City Virtual Tour

Tuesday, April 30, 2013

Bankruptcy and Foreclosure Info

 Bankruptcy  Talking Points
  • Some homeowners who are behind on their mortgage payments and other debt obligations may think that filing for bankruptcy will prevent their home from going into foreclosure; but they are mistaken.
  • A Chapter 7 bankruptcy – the most typical bankruptcy protection filed by individuals – will at best delay, but not prevent, a foreclosure. Banks will typically wait out the bankruptcy case, then immediately proceed with the foreclosure upon discharge.
  • Occasionally the banks will petition the court to release the property even during the bankruptcy if it has no equity so they can proceed with foreclosure. If the home has enough equity, it will be sold as part of the bankruptcy case, with the proceeds going to creditors.
  • What a bankruptcy will do is convert all “recourse” loans – where a borrower has a personal responsibility for repayment – into “non-recourse” loans, where lenders cannot sue a borrower to get repayment. That’s because a Chapter 7 bankruptcy will discharge the borrower’s personal responsibility for the debt even though it will not release the liens on the property for the loans.
  • So, while a bankruptcy does not eliminate secured home loans and a homeowner can still be foreclosed on, all home loans, including second mortgages and home equity lines of credit, will become non-recourse, and lenders cannot sue the homeowners for any balance owed.
Source: Orange County Register
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