Bankruptcy vs. giving house back

Asked by Sharyn Willard, SRES, ABR, Blanchard, OK Sun Mar 18, 2012

I got an email from a friend & I need your advice since I don't feel comfortable answering her....

"What if you can't pay your mortgage be cause they have increased your monthly payment where it's impossible for you to pay it. You are also behind in your payments. Can't afford to refinance it. Would it be better to file bankrupt or could the person just move out the house and let it go back to the lending agency?"

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Sun Mar 18, 2012
That is a tough one to answer. I can't give advice for your friend, but If this was me I would first check to see if my lender would modify my mortgage to lower the payments. Being behind in my payments would actually help me with a modification, but I would still have to qualify. Depending on who my lender is will make a big difference.

Bankruptcy may be an option, but I would have to look at my total debts and see if a BK 7 or BK 13 would be my best solution. If I was going this direction I would absolutely consult with a local BK Attorney first.

If I just move out of my house and give it back to the lender I would be doing a deed in lieu of foreclosure. There are some benefits to doing a deed in lieu, but it will depend on my lender and my state. This is something I would speak to my lender about to get more information or a local Real Estate Attorney.

The fourth option I would look at is listing my house on a short sale.

Every option is difficult and I would take a lot of time weighing all of my options and consulting experts in each area. No matter what I would be in contact with my lender.
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