It may sound odd to suggest declaring bankruptcy as a means to avoiding foreclosure, but in some cases this is possible. Usually this type of strategy (like a short sale option) applies when you have negative equity in your home (that is you owe much more than the home is worth in the current marketplace) as opposed to certain sales strategies that can help you avoid foreclosure if you have some equity in your home.
It works like this: If you currently owe so much on your home, or the value of your home has declined so much, that your second mortgage or HELOC (home equity line of credit) is completely unsecured by the equity in the home, you may be eligible to dismiss the second/HELOC through a chapter 13 bankruptcy filing. As an example: Let's say that you bought your home with no money down and financed the entire purchase price of $300,000. Since you were living in a town like Las Vegas, and you bought two years ago while the market was still appreciating, after owning the home for 8 months, you found that you could get an appraisal for $350,000. You decided to take out a HELOC in order to access that cash. You did so, and were approved to take a $40,000 loan against the new found equity in your home. Now fast forward 16 months. You are having difficulty making your payments and are considering foreclosure or bankruptcy as an option. Your home, under current market conditions, is now worth only $290,000. Since you owe more than this on your first mortgage, your HELOC has beome completely unsecured by the equity in your home. As such, it may be treated as any other unsecured debt and is eligible to be stripped and discharged under a Chapter 13 Bankruptcy proceeding. And the great news is, that if you are able to continue making your payments on your first mortgage, you can stay in the home, avoid foreclosure, and if you later decide to sell the house, you will not have to pay back the second/HELOC.
Bankruptcy Help and Information: To determine if your home might be saved using the above strategy, you need to contact an experienced bankruptcy attorney. For a referral to an experienced bankruptcy attorney in your area, contact us at foreclosureandbankruptcy@gmail.com
