Trying to Stop Foreclosure Without Filing Bankruptcy?
While some homeowners understand that bankruptcy is the best option to avoid foreclosure and discharge other debts, other homeowners are not sure if it’s their best option. While there are some ways that a homeowner can avoid foreclosure without filing bankruptcy, they should carefully consider their whole financial situation before forgoing bankruptcy protection.
Below are a few ways that some homeowners avoid foreclosure outside of bankruptcy:
If a homeowner has a temporary setback such as short-term unemployment or reduction income, they may be able to convince the lender to suspend mortgage payments. However, if the homeowner’s financial situation is more long-term such as ongoing unemployment or a permanent medical disability, avoiding foreclosure with forbearance may not be possible. A matter of fact, some lenders may refuse to give forbearance if they suspect a financial issue isn’t temporary. In those situations, it may be more beneficial for the homeowner to file bankruptcy and use the automatic stay to stop any foreclosure that’s pending.
Sometimes a debtor facing financial difficulty may apply for an interest-free HUD loan and avoid foreclosure outside of bankruptcy. To qualify for an interest-free loan from HUD, the homeowner must be at least four months but not more than 12 months delinquent on mortgage payments and the home MUST NOT be in foreclosure. A homeowner must also have the financial ability to resume regular payments on their mortgage after receiving the loan. For those homeowners facing unemployment and/or other large debts, resuming regular payments on their mortgage may be impossible. For those debtors, filing bankruptcy offers a better solution because it allows them a chance to catch up on payments while stopping the foreclosure process in the meantime.
While mortgage lenders must now stop the foreclosure process while a homeowner applies for a mortgage modification, the entire mortgage modification program is rife with bugs. Homeowners hoping to save their home outside of bankruptcy may find that even if they win a mortgage modification, there isn’t much in terms of monthly savings. Some homeowners who have insisted on forgoing bankruptcy have reported that their mortgage modification made their monthly mortgage more expensive.
Homeowners hoping to use any of the alternative forms of fighting foreclosure must make sure that the process will really work for them. They must also consider their other debts and how they will be impacted. If a homeowner is saddled with credit card debts and medical bills in addition to their delinquent mortgage, they may want to consider bankruptcy. Even in bankruptcy a debtor can pursue alternatives such as mortgage modification while simultaneously receiving the benefits of the bankruptcy automatic stay.