Chicago Bankruptcy Can Help Homebuyers Considering Walking Away From a Mortgage
Strategic default - in which a homeowner simply walks away from a mortgage - is on the rise.
In a Chicago area survey last year, 30 percent of homeowners who defaulted on their home loan were able to afford payments but chose to walk away.
Usually borrowers choose to walk because they owe more on their house than the house itself is worth. With real estate prices in Chicago continuing to fall, homeowners are realizing they won't recover value anytime soon and some are getting out now in order to save money.
But defaulting on a mortgage is not without consequences. Walking away damages credit, decreases your chances of qualifying for future loans, and comes with the risk of being pursued in court by lenders. Maybe most significantly, though, defaulting on your mortgage does nothing to lower your debts.
By filing for a Chicago bankruptcy, homeowners can keep a roof over their heads while freeing up more money for the mortgage each month.
Part of the problem is the mortgage system, according to a recent MSNBC.com article. In the past, people knew who owned their mortgage. In many cases, they received their loan from the teller at the local bank. Today, people are approved for loans online, then those loans are split up and sold off to faceless investors. Homeowners who try to get a loan modification often have difficulty determining who actually owns their loan. The incentive to follow through on payments just isn't the same as it used to be.
But while it may be easy for homeowners to walk away, dealing with the aftermath is not so simple. Any time you default on a loan, your credit score takes a serious hit. Keep in mind that your credit score affects your ability to rent a home or apartment and to qualify for affordable rates on future loans.
Then there's the risk of being pursued in court by lenders seeking a "deficiency judgment" - a court-ordered repayment of the mortgage in full. While homeowners often have an "it won't happen to me" attitude, lenders are stepping up their aggression in punishing those who default.
If you're considering walking away from your mortgage, do yourself a favor and speak with a legal professional before you make any rash decisions. What seems good for the short term may hurt you in the long term.
In exploring your options, you may find an alternative solution. Chapter 7 bankruptcy has the ability to discharge debt, providing a clean financial slate.
Those who don't qualify for Chapter 7 may benefit from Chapter 13 bankruptcy, in which debt is restructured to make payments more affordable. While lenders don't care whether you can stay in your house, bankruptcy was designed specifically to help homeowners.
You can walk away from your problems - in which case, it's only a matter of time before they follow you - or you can deal with them and find a solution. For many homeowners, bankruptcy is that solution.
If you're underwater in your home and weighing your options, consider speaking with one of our professional Chicago bankruptcy attorneys today. Call the DebtStoppers Bankruptcy Law Firm at 800-440-7235 today for a free debt analysis.
More Blog Entries:
Young Chicago Adults Needing Financial Advice May Consider Bankruptcy in 2012: January 10, 2012
Consumers With Bad Credit Could Benefit From Chicago Bankruptcy: January 6, 2012
As Home Prices Fall, More Borrowers Walk Away, by John W. Schoen, MSNBC.com