If You’re in Financial Trouble, Speak With a Bankruptcy Lawyer Today
Mortgages and home ownership are some of the biggest expenses people have.
And if you lose your job or encounter other financial hardships, you may find yourself unable to keep up with payments.
As well, a bad housing market or decreases in your property’s value may cause you to soon have an underwater mortgage.
This can all add up to you needing debt settlement or maybe needing to consider filing for bankruptcy as a way to get much-needed debt relief.
This can sound overwhelming, but it doesn’t have to be. That’s why it’s recommended you speak with a bankruptcy attorney near you to understand your options and the best path to take.
You may be wondering, is it smart to keep paying toward an underwater mortgage? If you file for bankruptcy, will you be able to keep your house?
Let’s dig into these questions.
What’s an Underwater Mortgage?
An underwater mortgage is when the principal on your mortgage – the original balance of the loan you took out – is higher than the value of the house.
Say you initially took out a loan of $250,000, but now your house is worth $200,000 – your mortgage is considered underwater.
Underwater mortgages happen for two main reasons:
- The value of your home has simply gone down. Your neighborhood has become less desirable, and people aren’t willing to pay the same amount of money you’re paying for the house. The demand is low.
- You got behind on payments. The interest is piling up, and more and more of your payments are going toward that instead of the principal. You’re now getting further and further behind in paying off your mortgage.
If your mortgage is underwater, and you’re struggling with debt (whether for your home or other expenses), it may be time to speak with a trusted bankruptcy law firm, such as Denver-based The Wink Law Firm. They’ll review your case and help you determine your best option. The best option may be filing for bankruptcy.
Can You Keep Your Home in Bankruptcy?
Bankruptcy helps you discharge debts, such as credit card and medical debt. You then either no longer have to pay those debts at all, or regular, more manageable payments are set up over a period of 3-5 years so you can repay those debts.
Bankruptcy even makes it possible to keep some of your possessions. After all, bankruptcy wouldn’t be a great option if it meant you were then forced to live out on the street with no money whatsoever.
So what about your house? Can you keep that if you file for bankruptcy?
You can keep your house after filing for bankruptcy if you can continue making mortgage payments on it.
Discharging your credit card and medical debt should free up some money so you may now be able to make payments again and stay in your home.
However, that doesn’t mean it’s still the smartest financial choice. It may still be smarter financially to walk away and rent instead.
But Isn’t Bankruptcy Bad?
Bankruptcy is a choice to be taken seriously. But it can be one of the smartest ways to get your financial life back on track if things have gotten too bad.
It doesn’t mean your life is over or that you’re a failure.
Still, many people are scared about letting their house fall into foreclosure, even if it might make financial sense in the end. They may feel ashamed or that it’s still better to keep a home than go back to renting a place.
The Value of Staying in Your Home vs. Renting
When considering the value of staying in your home versus renting when you’re in a tough financial situation, it’s important to consider a few factors.
The value of home ownership should include home value appreciation at some reasonable level (reasonable expectations of where the home value could go in the future), principal reduction on your mortgage over time as you pay it, and the tax deductions you get for the interest portion of your mortgage payments.
On the other hand, the value of renting should include the monthly savings from cheaper rent for a similar home (which seems to exist in almost every situation) as well as some appreciation which could be earned with those savings if you were to invest them every month while renting.
So, when should you consider giving up your home? When your home is worth less than your mortgage. In such a case, you are underwater and your monthly payment is recovering losses instead of adding to your benefit. Depending on how far underwater you are and the cost of renting, you may be better off financially by just walking away.
A lot of people consider their home an investment. Unfortunately, some investments just become bad.
If you’re wondering about the value of your home and whether you should stay in it or not when you’re dealing with a tough financial situation, it’s time to consult with Denver bankruptcy lawyers The Wink Law Firm. They’ve helped clients for over 10 years with debt settlement, personal bankruptcy, and small business bankruptcy.
Other Financial Benefits to Renting
One of the big, unsurprising benefits to renting is it will most likely be cheaper than continuing to try to pay off your underwater mortgage.
But there’s more.
In Colorado, for example, it takes six months for a bank to foreclose on a house. During that time, you can legally live rent free, as in, during that period you would not have to make mortgage payments or even rent payments. So this can add even more to your savings, as you work to repair your finances.
If you are underwater in your mortgage, you should consider walking away and letting the bank foreclose. You may find that you can reduce your monthly expenses without impacting your lifestyle.
Speak With a Denver Bankruptcy Attorney Today
It may feel shameful to have to walk away from your house and an overwhelming mortgage. But it may be the smartest choice so you can improve your financial situation. Speak with a debt settlement attorney at The Wink Law Firm in Denver, Colorado, and learn your best option. Contact them online or by calling (720) 523-0620.