Surrendering Your House in Bankruptcy
It is frightening when banks begin sending out notices that loans are slipping into default, and when creditors begin threatening legal action. Many in-debt homeowners begin to panic and consider getting out of their homes.
Surrendering the house could, after all, alleviate one huge expense every month if a homeowner is willing to downsize. Typically, a home can be surrendered as part of filing for bankruptcy. However, homeowners are not required to file for bankruptcy to surrender their homes.
There are obviously many details that a homeowner would have to consider before making such a landmark decision. However, two sound alternatives to consider are equity and loan security.
Equity, Refinancing, and Short Sales
If a homeowner has substantial equity in their home, surrendering it outright might not be the best course of action to shed a portion of the debt. Equity, while not as valuable as liquid cash flow, holds a great deal of value and can give the homeowner some leverage with the bank.
Refinancing is an option that many homeowners consider. If a homeowner has equity in a home, they can also consider selling the home either through traditional real estate processes or through more complex methods such as short sales.
A short sale is a transaction between the homeowner, the bank, and an interested third-party buyer or real estate investor. Essentially, the property is sold for a percentage of the outstanding debt on the home in order to avoid foreclosure and free the homeowner up from bankruptcy and all the credit woes associated with it.
Since the decline of the real estate market and the economic recession that started in 2007, there has been a significant increase in the number of short sales in the U.S.
Secured Loans and Surrendering Your Home
There is also the scenario of a homeowner who has put up a house as collateral for a secured loan or a second mortgage.
In these instances, the homeowner may have taken out a loan for a number of reasons such as:
- Hospital bills
- Emergencies or investments
- And put up their home or other property as collateral
If a person in this situation cannot repay the loan, surrendering the home or property, while understandingly difficult, could save a tremendous amount of financial burdens through a future bankruptcy.
It is in a debt-ridden homeowner’s best interest to contact a debt relief lawyer as soon as possible to explore options and take full advantage of the laws designed to protect the homeowner’s rights.
Call now for debt relief at (817) 241-5552 or contact us online! We offer free consultations.