Avoid Bankruptcy and Get Out from Under Mortgage

Tamsen Butler
Financial Problems

If you are trying to avoid bankruptcy and get out from under mortgage, there are several definitive steps that you need to take. Believe it or not, many people have turned their finances around and saved their homes, all while avoiding bankruptcy.

Take Action

What is the worst thing you can do when you owe more than your home is worth and you think you may be heading to bankruptcy? Not taking any action is the worst choice to make. You probably already know that the problem is not going to work itself out, but for some people, avoiding the issues altogether helps them cope mentally with the looming financial problems. It is far better to get to work on fixing your financial issues as soon as you realize that there is a problem.

Take solace in the fact that you are not alone. Many people wind up owing more than their homes are worth, and through no fault of their own. Real estate depreciation is to blame in many instances, as are second mortgages that were obtained before the home started depreciating in value. While homes used to be considered a sure bet to increase in value, in present day it is not a concept that is guaranteed.

Assessment

The first step to avoid bankruptcy and get out from under mortgage is to figure out where you stand right now.

  • How much do you owe on your home right now? Consider your first mortgage, as well as any equity loans or lines of credit you have, also referred to as second mortgages.
  • How much is your home worth? You can find out the market value of your home by using an online estimator. Zillow.com will give you a fairly accurate estimate of the market value of your home.
  • How much do you in other debt? Include credit cards, car loans, personal loans, and any other debt to which you are obligated to pay.
  • What are your other expenses not related to debt. Consider utilities, groceries, gas for your car, and other necessary expenses.
  • What is your income? Consider income from all sources including salary, annuities, child support, and any other income that is recurring.

If you are in a situation where you are considering bankruptcy and you owe more on your home than it is worth, there is a good chance that following the steps listed above will reveal that your income is not sufficient to manage the debt you owe while still handling your daily expenses. On the other hand, if you realize that you are actually in better financial shape than you thought you were -but didn't know because you had never sat down and had a close look at your financial picture- then you may merely need to compose a budget and follow it in order to get your money situation organized and under control.

On the other hand, for many people, the financial analysis simply proves exactly what they already know: bankruptcy is a viable option and they owe more than their home is worth.

How to Avoid Bankruptcy and Get Out from Under Mortgage

After you have conducted an honest assessment of your financial picture, seek out professional help conducive to your next course of action. For example, if you need help composing a budget, or renegotiating some of your consumer debt, a non-profit credit counseling service may be your best option.

Here are a few other options to consider:

  • Find out if you qualify for a mortgage modification, which will lower your monthly mortgage payments which may balance out your overall financial picture.
  • Consider a consolidation of your debt. If you have several high interest accounts, consolidating them all into one lower interest loan can save you money and give your budget more flexibility.
  • Borrow the money you need to catch up from a friend or family member. This can be a complicated situation, however, but if a person is willing to lend you the money and you have no other option, this arrangement may help you avoid bankruptcy.

If you owe more money than your home is worth it is unlikely that you will be able to refinance. Whether your home will eventually appreciate back up to a point where you owe less than the market value of your home depends largely on how long you are willing to wait.

Bankruptcy can be an option to explore, even if you want to keep your home. In some instances, you can declare bankruptcy without losing your home. Speak to an attorney about your options, but if your goal is to avoid bankruptcy altogether while steadily paying your mortgage, work with a financial professional to get your overall financial picture under control.

Avoid Bankruptcy and Get Out from Under Mortgage