Some economists are predicting that the real estate market will bottom out soon and then begin a slow recovery process.  Sadly, foreclosures may rise again in 2011 and reverse the negative equity statistic as people with underwater mortgages lose their homes.  Nationally, about one home in every 1,000 was foreclosed on during December, 2010. 

Foreclosure is a very stressful process.  It is a public record and is often published in the newspaper.  A foreclosure can happen rapidly and often forces the homeowner to move before ready.  This can be a major disruption to family and children.  Of course it impacts your credit score for years. 

By filing bankruptcy, the foreclosure process can be avoided.  In some cases, a Chapter 13 bankruptcy can provide the debtor time to cure an arrearage over three to five years in small payments and stop foreclosure completely.  In other cases bankruptcy can strip away an entirely unsecured second mortgage, thereby freeing up money to pay the first mortgage.  Lenders are also able to modify your home mortgage during bankruptcy through the federal Making Home Affordable Program. 

If you are underwater and struggling to pay your home mortgage, speak with an experienced attorney and learn how the federal bankruptcy laws can help you.  Whether you need to pay past-due mortgage payments, strip away a junior lien, or surrender the property and “walk away,” your bankruptcy attorney can explain the costs and benefits of each option.  Call today and get the advice that can help you build a better financial future.

Facts: Debtor was living between her home and her mother’s home who she cares for.  She had a mortgage on her home and her son lived in the house and paid the mortgage. She had approximately $14,000.00 in equity in the home.  Her living arrangement with her mother was not disclosed during the consultation, review, or filing appointments.

At court, the debtor informed the Trustee of these things. This was the first time the attorney heard of this arrangement. She had also claimed the equity as an exemption under U.S.C. 11 section 522(d)(1). The Trustee determined this was an asset case and objected to the exemption on the basis that she could not exempt this equity because it was not her residential real estate since she resided at her mother’s home. All of her mail went to that address, her driver license had that address, and this was also the address she used for voter registration.  The Trustee later filed a Motion to Sell the Real Estate which the Court granted.

This was not the client’s intention.  She wanted to keep her home and eventually move back in permanently with her son.  In an effort to save her home, she moved the Court to convert to Chapter 13 which was granted without objection by the Trustee.  She must now fund a plan to pay money to her unsecured creditors.

The moral of this story is to fully disclose your assets and any arrangements involving those assets to the attorney.  It is a matter of losing assets you think may be protected by exemptions which may not be the case.  Those assets can be liquidated through sale in a Chapter 7 case by the Trustee to pay your unsecured creditors for the debts you owe.  The attorney can best advise you on how to handle your assets.  Remember that what you don’t disclose can hurt you by either losing the asset, forcing you into a Chapter 13, or most harshly losing the asset and not receiving a bankruptcy discharge at all.