Why Upside Down Homeowners Should Consider BankruptcyAlready in the first half of 2010, 20 percent of the homeowners facing foreclosure in Dallas-Fort Worth are upside down on their mortgage.  And that number is expected to grow.  With so many homeowners in upside down mortgage facing foreclosure, should more of them consider filing bankruptcy?  Below are a few reasons why considering bankruptcy, may be a wise choice for upside down homeowners:

  1. Even if your property is in a nice neighborhood and is well maintained, it may be difficult to sell your home in time enough to avoid foreclosure, if you are upside on your mortgage.  Many lenders are reluctant to agree to a short-sale especially on a home they believe they may be able to profit from in a few short years.  That’s why many lenders and moving forward with a foreclosure on upside down mortgages unless the debtor uses bankruptcy to stop them.
  2. Many lenders are reluctant to agree to modifications on upside down mortgages because the perceived financial loss it too great.  The lenders would need to cut into the principal to make a meaningful modification on a upside down mortgage.  And because this action would be too painful many just move forward with foreclosure unless the debtors files bankruptcy to save their home.
  3. Without bankruptcy, the lender will be able to foreclose on the property and pursue the debtor for payment on the mortgage, even after the property is sold at auction.  If a debtor files bankruptcy on the property and all of his/her other debts, any deficiency balance left after a foreclosure auction would be forgiven.