Should I File Bankruptcy or Defend My Foreclosure?

In this volatile real estate market and recession economy, many homeowners are faced with the difficult decision of choosing between filing a bankruptcy and defending a foreclosure. Unfortunately, the dominant thought among most attorneys is that bankruptcy is the proper remedy to address foreclosure. Our law firm handles both foreclosure defense and bankruptcy, so we have the benefit of seeing both sides of the coin.

For many individuals with extensive consumer debt or medical debt, as well as debt relating to real estate, bankruptcy is an option. (however, one should never forget the power of negotiating debts).

For those individuals who are mainly dealing with debt relating to their real estate holdings, it is often a poor decision to file a bankruptcy prior to defending a foreclosure.

For those individuals trying to save their homes or real property, a Chapter 7 bankruptcy will do little to save a home, except briefly delay a foreclosure case. In fact, Chapter 7 is designed to liquidate debt. For those individuals considering Chapter 13 bankruptcy, they will be met with an often difficult and lengthy repayment plan. Bankruptcy judges are not endowed with the authority to modify mortgages; therefore, Chapter 13 is often not helpful to homeowners.

A clearer way to protect a home is to pursue one of the many foreclosure alternatives including loan modification, reinstatement, or refinancing. Often these alternatives take time and may take skilled legal advice. While in the process of pursuing foreclosure alternatives, property owners may be sued for foreclosure. A skilled foreclosure attorney can help defend the foreclosure and advise borrowers regarding foreclosure alternatives.

Many people are not interested in saving their homes. Perhaps they have no equity or are upside down, where they owe far more than the property is worth. Perhaps they do not have the financial means to qualify for a loan modification, reinstatement, or refinancing. Or perhaps they are simply tired of the system- they are fed up with dealing with banks. Many people fear a deficiency judgment more than anything else. A deficiency judgment may arise where a borrower’s property sells at a foreclosure auction for less than the amount that is owed on the loan. In such a scenario, the borrower could be held responsible for the difference owed or the “deficiency” amount.

While the potential for a deficiency judgment is a valid fear for homeowners, there are tools and options that will avoid a deficiency without filing bankruptcy. First, the homeowner may enter into a short sale, where the bank approves the sale of a home for less than the amount owed. In a short sale, the bank forgives the difference owed and the borrower is relieved of any liability.

Another solution to avoid a deficiency judgment is a “deed in lieu of foreclosure.” In a deed in lieu scenario, the borrower turns the deed over to the lender in lieu of foreclosure; this means that the lender promises they will not file a foreclosure or seek a deficiency judgment against the borrower. A deed in lieu avoids a deficiency judgment, without the need to file bankruptcy.

Finally, for those individuals already facing a foreclosure lawsuit, a skilled lawyer should be able to defend foreclosure cases and negotiate a favorable “consent judgment.” In such a consent judgment, the borrower consents to the entry of a foreclosure judgment in exchange for the banks promise and guaranty to waive any deficiency against the borrower. Many of our clients want us to time the entry of such a consent judgment so that they are able to get the maximum time in their home. This arrangement affords our clients the maximum use of their property and also allows our clients the opportunity to pursue other options as they see fit, including loan modification or reinstatement. There is a great deal of value for those borrowers that choose to pursue a consent judgment- the borrower essentially walks away from the property without owing money to the lender, and without having to file a bankruptcy.

While not every homeowner may be able to pursue a loan modification, short sale, deed in lieu or consent judgment, these are excellent options to avoid debt and avoid filing a bankruptcy. Moreover, while borrowers pursue these options they are able to continue living at the property, or renting the property to tenants. This usually means that money is saved or money is earned. Finally, if these foreclosure options do not work out in the long run, bankruptcy is always a failsafe option- it can always be filed if everything else fails.

Protect Your Assets

2 Financial Planning Strategies to help protect your assets

Would you like more control of your finances? The first thing you'd need to do is to actually create a plan. And then, you need to keep your goals and purposes in mind as you invest. But that's just the beginning. Read on for two more of the six key elements you need to deal with before you can be assured you've covered the basics.

These two keys are absolutely essential, yet many people are reluctant to deal with them because doing so makes them uncomfortable. No one likes to think about dying, and no one likes to think about getting sued.

Yet the first one is unavoidable – we all will die, sooner or later. And when that happens, hopefully very far into the future, you'll want to make sure your assets will go to the people or causes of your choice, not the court's choice. And the second issue, getting sued or losing assets due to situations beyond your control, is actually more likely to happen than you might think.

1. Get Your Estate in Order

Do you have a will? You really need to have one. You'll also need to set up durable powers of attorney and health care directives. I realize that this might be an uncomfortable topic, but do it anyway.

If you don't, the courts will determine what to do with your assets. Do you really want them to decide who should get your stuff? I didn't think so.

And if you have significant assets, you will want to look at revocable living trusts and other entities as well to ensure that your heirs will actually be able to benefit from the fruits of your hard work.

2. Protect Your Assets

Asset protection is another topic we'd rather not think about. But the fact is, that there are many risks that could endanger your wealth: premature death or disability, taxes, inflation, adverse economic conditions, lawsuits and more.

Unless you want to risk losing it all, you must take the necessary precautions to protect any assets you have accumulated. You can do that by using the appropriate asset protection tools such state and federal statutes, legal structures, and insurance.

This can be as simple or as complicated as you choose, depending on the level of protection you desire. The more assets you have, the more important it is to protect them from as many risks as possible.

Since getting sued is a big risk in this current society, here's a very cool additional benefit of proper asset protection: It may be much more difficult or even impossible for the other party to collect a judgment if a lawsuit doesn't go your way. And that prevents you from looking like a desirable target. Most attorneys work on a contingency basis, and if they're unlikely to collect, they may refuse to get involved.

And regarding insurance, can you survive without your spouse or business partner? Do you have enough cash to cover the bills if you can't work? Have you reviewed all of the risks you're currently taking to determine if you want to accept that risk or transfer it to someone else? These are very important questions that need to be answered if you really want to protect your assets.

How you choose to structure your estate and business activities will have a significant impact on your overall financial success. The better you plan and execute, the more you will be able to enjoy the benefits of your work.