Solving The Underwater Mortgage Crisis With BankruptcyWhen we think about foreclosure and financial crisis we often think of homeowners who are about to lose their home to foreclosure because they can’t afford payments and/or they have suffered a job loss which has made them vulnerable to foreclosure.  But there is a whole new bred of homeowners who are sinking financially; but not facing foreclosure. Instead, they are facing the prospect of paying on a mortgage is that is significantly more than the value of their home.  Many of these homeowners are desperately searching for home modifications that will make their home affordable while bringing the mortgage in line with the home’s true value.  And while legislators and creditors claim there is help available, most of these homeowners are getting home modification denials because their mortgage is worth 125% or more than the true value of their home. 

And while underwater homeowners may not be in danger of immediately losing their home to foreclosure, they are often unable to sale their home because of the discrepancy between their mortgage and the true value of their home.  A matter of fact, some of the homes are worth so little comparatively speaking that it often makes more sense to just walk away and let the home fall into foreclosure.  And that’s what many homeowners are doing. But bankruptcy could offer another solution for underwater homeowners who have decided to walk away.  Since allowing an underwater home to fall into foreclosure will most likely mean that the mortgage company will come after the homeowner for the balance of the loan, filing bankruptcy may offer some protection.  When a debtor files bankruptcy after a foreclosure, the balance owed on the loan can be discharged if they are filing Chapter 7 bankruptcy.