Don't Walk Away from Your House: The Bankruptcy Option
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Foreclosure Help: Don't Walk Away From Your Home

Many news outlets have been reporting lately on the troubling trend of "walkaways," who are leaving their "upside-down" homes and sending "jingle mail" to their lenders. In other words, people are giving up on their mortgages. Here's a quick look at the terms that have been coined to describe this trend:

  • Jingle Mail: mail sent to a lender with house keys, usually by a walkaway
  • Under Water: when your home loan is for more than your house is worth
  • Upside-down: see above
  • Walkaway: someone who walks away from a mortgage loan, whether because she can't afford the payments or because her home is upside-down

As house prices continue to fall, many borrowers are finding that they owe more to their lenders than their house's current value, according to US News & World Report. Apparently, some borrowers walk away to avoid foreclosure, some walk away because they no longer view mortgage payments as a sound investment and some are seeking help from online businesses to hasten and facilitate the foreclosure process.

But beware: All three options could be devastating to your financial health and credit score.

Know the Risks of Walking Away

If walking away from your home or giving in to foreclosure sounds like a tempting solution, consider the following:

  • Fannie Mae, the government-sponsored mortgage lender, issued new guidelines for dealing with foreclosures in March. To get a loan from Fannie Mae, you must be foreclosure-free for five years (three with extenuating circumstances), make a minimum 10% down payment and have a FICO credit score of 680 or higher.
  • Freddie Mac, Fannie Mae's largest competitor, is reportedly now pursuing some borrowers who have walked away from their home loans.
  • Foreclosure has a serious negative impact on your credit score for seven years, which can mean uncomfortably high interest rates on credit you manage to receive, difficulty receiving credit (student loans, car loans, credit cards, etc.) and even trouble getting insurance or a job.

Fight Home Foreclosure, Protect Your Home — You Have Options!

Because of the structure of the modern mortgage market, your home loan was likely put in a pool with thousands of other loans and sold piecemeal to investors. Most borrowers don't know who holds their mortgages, which can lead to a sense of anonymity and help people justify walking away from a house that's headed for foreclosure.

But you could still owe income tax on the balance you never paid, and the IRS will likely see that you pay it. Instead of walking away from foreclosure, try one of the following.

  • Negotiate: Congress enacted a law last year that excuses homeowners who negotiate with lenders for a decrease in overall mortgage payments from paying taxes on the amount of debt forgiven. Financial experts often emphasize that foreclosure can be avoided in some cases when the borrower takes quick and timely action to address payment problems.
  • Consider Filing Chapter 13 Bankruptcy: Filing Under Chapter 13 has proven to be an effective means of preventing foreclosure for many homeowners. When you file, an automatic stay will take effect to stop foreclosure, and you'll work out a repayment plan for your current debts.
  • Avoid Foreclosure-Promoting Sites: Certain Web sites have sprung up on the Internet claiming to help people go through the foreclosure process more smoothly. These sites offer costly services and may not disclose the total potential damage foreclosure can cause to your overall financial health.

Your Home, Your Future

You know that both foreclosure and walking away are bad for your credit health. In fact, even before you file, your credit may have already been damaged by months of late mortgage payments. What you may need most of all is a fresh start. A chance to wipe the slate clean, and move forward without the stress and burden of your past debt problems. 

For many people, filing bankruptcy gives them the fresh start they need and allows them to move forward with their life. Filing bankruptcy may allow you to keep your home and clear your debt without sacrificing 

Remember: foreclosure is inconvenient and costly for lenders, so they're often willing to work out new terms with struggling borrowers. It's usually better for them to make slightly less money by adjusting a loan's terms than to lose money by proceeding with foreclosure.

Take Action to Stop Foreclosure Today

If you're facing foreclosure, you may want to immediately get in touch with a local bankruptcy lawyer who can explain how filing Chapter 13 bankruptcy has helped others stop foreclosure in the past and how it may be able to help you keep your home as well.

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