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Colorado mortgage debt and bankruptcy, do you know your options?

Are you a homeowner considering bankruptcy and wondering whether or not you should include your mortgage debt in your bankruptcy? The answer depends on a number of factors, including whether not you want to stay in your home and if you have any equity in your current mortgage. Filing for bankruptcy is still a viable option for dealing with your debt and can be ideal in certain situations.

Since a mortgage is considered secured debt, unlike credit cards and medical debt, you should continue to pay your mortgage payments even while in bankruptcy, otherwise you risk having your home repossessed. Mortgage and rent payments are considered living expenses and are exempt from your income when considering your ability to pay down creditors. Filing for bankruptcy can actually make it easier for you to make your mortgage payments by reducing or eliminating your need to use that income to pay down unsecured debt.

If your home has little to no equity, or you are upside down in your mortgage, meaning you owe more than your home is worth, than it is highly unlikely you will have to sell your home to pay off creditors. If, on the other hand, you have considerable equity in your home, than you must seriously consider whether or not bankruptcy is right for you. Your home could be sold in order to pay off or pay down your creditors. You must then decide whether or not to continue to pay the mortgage and try and sell the home for as much as you can get, or stop making payments and allow the property to be repossessed.

If your home is repossessed it will be sold by the mortgage company and if it is sold for less than you owe the remaining balance becomes unsecured debt that you owe, which can be included in a bankruptcy and considered for discharge. If you wait to have your home repossessed until after you file for bankruptcy, you will be held liable for any remaining debt. Therefore it is important to seek professional advice from a bankruptcy attorney before you decide to file for bankruptcy as a homeowner.

Timing is everything, for proof read our earlier post on the Federal Mortgage Forgiveness Debt Relief Act, which is set to expire at the end of the year if congress does not act to extend it.

Source: Beat My Debt, "Can I include my mortgage debt if I go bankrupt?," James Falla, July 6, 2012

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