As of December, 2011,

For residential property not used for “agricultural purposes,” regardless of acreage, the determining factor is the amount of indebtedness on the mortgage involved at the time of foreclosure. If the amount claimed by the bank or other entity holding the mortgage to be due at the time of foreclosure is 66 2/3% of what is owed, the redemption period is 6 months. If the amount owed is less than that percentage, it is 12 months.

The reason for this is that the Michigan legislature recently revised a state law concerning foreclosure, MCL 600.3240, to make this change. The change was a “bargain” struck with creditor-friendly state legislators to continue to allow them to foreclose by publication rather than judicially (i.e., via a formal lawsuit filed with a state court in order to prove their right to foreclose). The result may be that properties with larger acreage that simply do not happen to be utilized agriculturally (determined by the filing of a Schedule F with one’s tax return) will be foreclosed faster, still with no need for banks to prove their right to foreclose before a judge, and, additionally, shortening a prior 90-day modification mediation period in the state foreclosure process to 60 days if the homeowner does not quickly return certain documentation.

In short, this is mostly favorable to mortgage-holding creditors and their servicers rather than homeowners, though, for many foreclosed homeowners, particularly those who, like most, actually have less than 3 acres to begin with, there will be no effective change in the redemption period.

But what is the redemption period? The redemption period, in short, is a period of time following a foreclosure sheriff’s sale of your property which Michigan state law provides in order to give you an opportunity to come up with a lump sum of cash sufficient to buy the property back from the foreclosing bank free and clear of any liens for whatever the foreclosing bank (or other sheriff’s sale purchaser) paid for it. For example, if, at sheriff’s sale, your home is purchased by the bank holding the mortgage (who are required to enter a bid up to the full amount of the debt you owe that bank) for $150,000, you may “redeem” the property from the bank, buying it back, for $150,000.

Obviously, this is not something that many homeowners can accomplish. But the redemption is, otherwise, a period of time in which the homeowner may remain in the home with any further need to make mortgage payments or pay property taxes before being required to relocate.

If a bankruptcy has been filed by the homeowner as a logical reaction to the foreclosure, the up-shot of this is exactly that: they may have less time to remain in the home free of that obligation to make a monthly payment, preparing to make the next move forward. While, after a bankruptcy, there will be no continuing legal obligation to make any payments or negotiate with the foreclosing bank (or any banks or entities holding second or third mortgages, who will have received nothing from the sheriff’s sale) with regard to deficiencies the bank may collect from the homeowner even after foreclosure (that is, the difference between the amount owed on the mortgage note and the amount the house sold for at sheriff’s sale), it is still a very useful if not vital period of time for homeowners attempting to make a fresh start.

If you are a southeast Michigan resident  and are considering filing for bankruptcy or have other foreclosure concerns, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

While Bankruptcy is one of the most cost-effective and efficient legal means

 Surrendering a home in bankruptcy enables you to walk away from the property without fear of either future collections or of a negative taxable consequence, without any negotiation with the bank holding your mortgage required. If you live in a so-called “deficiency state” like Michigan, lenders can pursue you for the balance of your debt on a mortgage after a foreclosure in most circumstances. A bankruptcy prior to walking away will prevent that from happening.

 However, you may not want to walk away from your home. If your home is underwater or over-mortgaged only because of the presence of a second or even third mortgage on your home, it may be possible to remove those secondary mortgages with a Chapter 13 reorganization bankruptcy. If you are in danger of foreclosure only because you have missed some payments, a Chapter 13 can also give you an opportunity to make up those payment deficiencies while under the protection of the Bankruptcy Court, free from fear of threats of foreclosure.

 In other words, there are a couple of different ways that you can save your home with bankruptcy. Both require the filing of a Chapter 13 Bankruptcy, which is essentially a payment plan running 36-60 months. In a Chapter 13 payment plan, you pay secured debt first, then other types of debt last—and only then to varying degrees.

 When a Chapter 13 Bankruptcy is filed, a master discharge under Federal Law called the “automatic stay against collections” clicks into place, preventing any foreclosure currently underway from proceeding, as well as any other action by any creditor that would constitute a debt collection attempt.

 With that automatic stay in place, you propose to the Bankruptcy Court through your Plan a repayment scheme:

• First, to cure a mortgage arrearage, you propose paying each month the basic contractual mortgage payment you are required to pay on your first mortgage.
• Next, if there is an arrearage or deficiency in your payment history that has triggered a foreclosure process by your mortgage lender, you propose paying off that arrearage as a lump sum with some interest over the period of your Plan. For example, if you were $5,000 behind in your mortgage payments and proposing a 60-month Chapter 13 Plan, you would propose paying $5,000 divided by 60, with interest.
• Thus, when you exit your Chapter 13 Plan in no more than 60 months and in as few as 36 months, you would have maintained your mortgage payment and cured any deficiency, resolving the need for a foreclosure and saving your home.

 In addition, as mentioned, you may also be able to discharge a second or third mortgage on your home. If you home is worth less than you owe on a first mortgage in fair-market value terms, your second mortgage is not actually secured by the value of the collateral securing that loan—the house.

 In the Eastern District of Michigan, where I practice, I must file a sort of lawsuit for my clients in bankruptcy court, along with the filing of their petitions and Chapter 13 plans, to accomplish a stripping off of this lien. The outcome of this lawsuit is a declaration by the bankruptcy court that this is not, in fact, a secured debt but actually an unsecured debt, like a big credit card, essentially. And that debt, once declared to be unsecured, is paid only after all other secured and priority creditors are paid in your Chapter 13 plan, and they receive only what is left of your Plan payments at that time, the balance of your debt being totally discharged, permanently, and the lien removed from your home upon completion of your Chapter 13 plan.

 This process may be different in other jurisdictions.

 If a foreclosure is imminent, you have a steady stream of income, and you would like to save your home without spending a year or more negotiating with your mortgage creditors, a Chapter 13 Bankruptcy may be a viable option for you.

If you are a southeast Michigan resident and would like to discuss your options in bankrutpcy, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

The Chapter 13 Plan may be 36-60 months long. Although there is no income-based eligibility standard in a Chapter 13, the same income-based “means test” that determines Chapter 7 bankruptcy eligibility also determines whether you may have a 36-month Plan. The Chapter 13 Plan is devised by you and your attorneys and proposed to the court for its and for creditors’ approval. What you pay in a Chapter 13 Plan is whatever net income you have in your household each month, after basic household expenses, such as food and gas and utilities are taken into account. For instance, if you have $1500 in net household income each month and $1200 in household expenses, your Plan payment would be $300 every month. 

The approval process for the Chapter 13 Plan is roughly 5-6 months long and will require you to attend, typically, at least two hearings at the Bankruptcy Court. Once the Plan is approved by the Trustee who is assigned to your case by the Court when it is filed, you are off and running, your only obligations being a timely monthly payment and good communication with your attorney, should your income decrease or expenses increase at any time. 

Chapter 13 is the form of bankruptcy available to you if you are not qualified to file a Chapter 7 bankruptcy.  However, there are many good reasons to file a Chapter 13 even if you are qualified for Chapter 7. 

First, there is no liquidation of your personal assets in a Chapter 13. If you have property that would be seized and sold off in a Chapter 7, a Chapter 13 may be your best option if that property is important to you. 

For this same reason, if you are running a small business, a Chapter 13 may be a wiser option so that you do not risk losing your business in a Chapter 7, where the Trustee has the right, under certain circumstances, to seize and wind down your business. 

Second, in a Chapter 7 bankruptcy, you either keep or surrender your real estate as-is, with all mortgages intact. In a Chapter 13, we can pursue a mechanism called a “lien-strip,” which will remove and discharge your liability to make payments on a second mortgage, if your house is worth less in fair market value than you owe on a first mortgage. 

We can also, under certain circumstances, cram down the payment you make for other secured debts, such as a car payment, so that you pay in full in the Chapter 13 plan only what the property security it as actually worth. If your car, for example, was purchased more than 3 years ago and has more than 75,000 miles on it, you will pay off your loan in a Chapter 13 only to the extent of the car’s real value.

Tax debts and other non-dischargeable debts, with the exception of student loans, can also be paid off through a Chapter 13 Plan at 0% interest—a few percent better than the IRS will give you in most of its repayment plans. 

A Chapter 13 can also be dismissed at any time if it is no longer working for you, or it can be converted to a Chapter 7 later on, if your economic circumstances decline. It is a highly flexible process. 

Chapter 13 Bankruptcy, best of all, requires virtually no negotiation with your creditors for it work. It is one of the most effective and most efficient processes for dealing with personal debt left in the American legal system. Debts discharged through bankruptcy carry no taxable penalty. 

If you are a southeast Michigan resident and are interested in exploring your bankruptcy options, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

In an effort to avoid filing bankruptcy, nearly every home owner with a troubled mortgage has attempted a loan modification to some degree. Although most attempts usually fail, even on the rare occasions when the modification has been approved, the debtor often still feels the need to file bankruptcy. As such, it is important to consider the impact and ramifications of a home mortgage loan modification before, during and after bankruptcy.

Loan modifications before a chapter 7 bankruptcy are not binding as to the note unless reaffirmed in the bankruptcy. If the loan is not reaffirmed in the bankruptcy, the note is then discharged. The debtor and lender can still honor the agreement as to the lenders lien rights (under a stay and pay scenario) without a reaffirmation agreement, but the note obligation would be forever discharged. Therefore, a debtor who saw his/her monthly mortgage payments slashed in half with a modification before bankruptcy might still not want to reaffirm the mortgage in the bankruptcy if the principal balance was not reduced and the home still has negative equity.

Loan modifications during a chapter 7 bankruptcy are binding if they are approved by the bankruptcy judge through a signed reaffirmation agreement. The debtor can still reaffirm a note which is not the exact same deal as the pre-petition obligation. A modification is essentially a reaffirmation agreement under better terms. Any modification agreed to during the case without bankruptcy court approval is not binding as to the debtors obligation on the note and is discharged.

Loan modifications after a chapter 7 bankruptcy can only be binding as to the debtor on the note if the debtor reaffirmed the mortgage with court approval during the pendency of the bankruptcy case. 11 USC 524 prevents the debtor and creditors from entering into an agreement after bankruptcy for a debt that was discharged in bankruptcy. Therefore, unless the mortgage was reaffirmed in bankruptcy, any post-discharge home modification is only binding as to the creditor’s lien rights.

Loan modifications before, during and after a chapter 13 bankruptcy are binding as to the debtor’s obligation under the note because the debtor who retains a home in the chapter 13 does not discharge the note. The debtor’s chapter 13 repayment plan is determined in part by the amount of money available to the debtor after the debtor pays the home mortgage, so a modified mortgage can lead to an increased payment to the debtors unsecured creditors.

It is important to note that most modifications start with a three-month trial period where the lender can back out for almost any reason before offering a permanent modification. One popular reason lenders deny permanent modifications is because of changed circumstances. As such, debtors should be wary of filing bankruptcy during the 90-day temporary modification trial period and just assuming the lender will continue to honor the modification agreement.

Guest Post by Atlanta Bankruptcy Attorney Peter Bricks.

How is this possible?

Typically, when a home is surrendered in bankruptcy (returned to the bank and allowed to proceed into foreclosure with no chance of collectibility or tax liability for the debt afterward), it is being surrendered because there is no “equity” in the property. That is, when the home’s potential sale value is compared to the mortgage debt attached to it, there is no positive balance. In such a situation, there is traditionally no “property” interest to be protected in the bankruptcy and the debtor’s attorney does not bothere to apply an “exemption” protecting the property from the Chapter 7 Trustee’s liquidation of assets power as there is no need to do so.

In Detroit, Trustees have, however, discovered a way to make equity, so to speak, from a home in this situation.

When a property is “surrendered” in bankruptcy, the homeowner’s liability for making payments according to the terms of the mortgage note is discharged. The bank holding the mortgage cannot afterward pursue the homowner for collections. The bankruptcy does not, however, remove the homeowner’s name from the title to the property. For that to occur, in Michigan, a traditional foreclosure process must occur in order for the bank to become the new owner of the house. In Michigan, this involves a series of noticing letters and offers to mediate, etc., followed by a sheriff’s sale or auction of the property to the highest bidder, followed by a 6-month “redemption period” if the property is under 3 acres and has not been abandoned.

Typically, after a bankruptcy, the homeowner may remain in the property for that entire timeframe, including the 6-month redemption period. This is a period of time that many post-bankruptcy homeowners count on to save up a nest-egg so that they may better make their next move, to a rental or other home.

Chapter 7 Trustees, with input from local real estate sales agents, have discovered that, on some occasions, the banks that own the mortgages are purchasing the properties back at the sheriff’s sale, post-bankruptcy, for less than fair-market value. These “underbids” offer an opportunity for the Trustee: they have the ability to “undo” the sheriff’s sale, recover the property from the purchasing bank free of the pre-bankruptcy liens (extinguished by the bankruptcy and the foreclosure sheriff’s sale), and re-sell the property for fair-market value, repaying the bank its sheriff’s sale purchase price and retaining the balance to distribute to creditors. This can happen at any time during the 6-month redemption period, further, and may result in a homeowner being obliged to leave the home earlier than anticipated.

Confused yet?

Don’t kick yourself, if so: this is a process that, for the past year or more, has had local bankruptcy attorneys scratching their heads as well. The important point to take away is that, after surrendering your home in bankruptcy, you cannot be guaranteed to have a full 6-month redemption period before you need to vacate the property.

There is, further, not much that bankruptcy attorneys can do to prevent the Trustees from exercising this power, unfortunately. The best your attorney can do for you is what I have been doing of late in my own bankruptcy petition filings: apply the $10,000 or so available “homestead” exemption that is typically used to protect equity in a primary residence in a bankruptcy regardless of whether there is any actual equity in the property at the time of filing. That done, if the Trustee re-sells the house, the Trustee must pay off the exemption amount—the full $10,000 or so, whatever it happens to be in any individual case—to the surrendering homeowner prior to paying any creditors anything after the sale. If nothing else, you get $10,000 for your trouble having to move in a hurry.

Nothing is uncomplicated in bankruptcy, and nothing underscores the need to hire not only an experienced bankruptcy attorney but a knowledgeable and up-to-date attorney. An attorney with 20 years experience will have 20 years of not-very-useful experience if he or she is not up-to-speed on these latest Trustee maneuvers. Prior to hiring an attorney, if you are planning to surrender your home, ensure that they are giving you up-to-date advice. An attorney who “guarantees” that you will have 6 months to remain in your home in Michigan is not giving you up-to-date advice.

If you are a resident of southeast Michigan and are considering filing for bankruptcy, please feel free to contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

A reaffirmation agreement, as I have written about many times before on this blog, is an agreement that is struck during a bankruptcy process between the filing debtor and one of his or her creditors. The reaffirmation agreement must be signed by you (the debtor), your bankruptcy attorney if there is not what is called “undue hardship” (no or negative income left over at the end of the month after your basic household expenses are deducted from your monthly average income as listed on the bankruptcy petition), and the creditor. Depending upon the circumstances, there must also be a court order in place approving the reaffirmation agreement for it to be valid and legally binding.

It is that set of “circumstances” that causes confusion among post-bankruptcy mortgage modification and other clients that we see. The concern is this: without a reaffirmation agreement, you are not bound to your debt after a Chapter 7 bankrutpcy. If you wish to walk away from your home, you can do so without the need for a short sale or any other kind of transaction alleviating your responsibility further; the bankruptcy has discharged your liability to make payments on the mortgage note, which is the contract obliging you to make such payments.

Most bankruptcy attorneys will not sign or file a reaffirmation agreement for a mortgage debt in Michigan (or virtually anywhere else in the United States that I am aware of). This is because, if you wish to keep your house and are current on your payments and can remain current on your payments, you cannot be foreclosed upon. Some bankruptcy attorneys—myself included—consider it to be very bad legal advice for a debtor’s attorney to advise, sign, and file such a reaffirmation agreement as there simply is no need for one and as not filing a reaffirmation agreement preserves the filing homeowner’s ability to walk away from the property free and clear if their circumstances do not improve, post-bankruptcy.

Most mortgage modification and other clients we see who have been through a bankruptcy, however, have no idea whether they have reaffirmed their mortgage note obligation or not. In that case, we must look at the docket report of their bankruptcy case to determine whether a reaffirmation agreement was filed or not and, if so, whether it was a valid reaffirmation agreement.

Reaffirmation agreements for real property mortgages, in short, are valid on their faces without need for a court order if:

• The debtor was represented by an attorney;
• The debtor’s income is greater than their monthly expenses as represented on their petition schedules;
• The debtor and debtor’s attorney and the creditor involved all signed the reaffirmation agreement prior to filing.

If these circumstances are true, a debtor has filed a valid reaffirmation agreement and will be bound to that mortgage note liability. In such cases, a modification negotiation may be more difficult to obtain because the creditor understands that you have the legal obligation to pay.

If these circumstances are not all in place, the reaffirmation agreement may not be valid without a signed order from the judge in your bankruptcy case approving it.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please feel free to contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

A reaffirmation agreement, in a nutshell, is an agreement signed as part of a Chapter 7 bankruptcy that must be approved by a judge to be valid, that in essence continues your legal liability for the reaffirmed debt even after the bankruptcy would have discharged it. In Michigan, so long as you are current on your mortgage payments, you cannot be foreclosed upon and cannot therefore lose your house. Therefore, there is no reason to sign a reaffirmation agreement in order to try and save it. Keeping your payments current does the trick alone and preserves your right to walk away from the property free and clear later on, after the bankruptcy, if your situation worsens for any reason.

When it comes to a second mortgage or a home equity loan or line-of-credit (HELOC), it especially makes very little sense to reaffirm this debt.

Particularly in Michigan, where I practice, the majority of properties that I see are already ”underwater” with regard to their first mortgages. (That is, the value of the home is worth less than the first mortgage.) A second mortgage on any of these homes is thus completely unsecured by the value of the home, the collateral for the loan. In this case, if you were to become deficient in your payments and the first mortgage creditor were to foreclose on the property, the second mortgage would receive nothing from the eventual sheriff’s sale auction of the property. Second mortgage creditors, as a result, rarely foreclose even when payments are deficient.

Of course, second mortgage creditors have the right to foreclose in virtually any case; it just doesn’t make a lot of sense for them to do so. These creditors, instead, may simply sit on the debt, allowing late-payments to accrue, reporting them adversely to the credit bureaus all the while, waiting for the home’s value to rise to the point where there is equity against their mortgage and where it makes sense for them to foreclose. Alternatively, they may charge the debt off (report it as lost business income to the IRS, issuing you a 1099 for the amount of debt “forgiven” and for which you will have to pay taxes) and attempt to collect it from you directly by way of collection lawsuit or other means.

In any case, if you are filing bankruptcy, regardless of the disposition of the real estate in questions, the bankruptcy will discharge your personal liability on that second mortgage note (and the first mortgage note), preventing the creditor from ever charging the debt off in a way that has taxable consequences for you and preventing the creditor from collecting it from you directly. The creditor still maintains its lien on the property itself, but, again, unless the home’s value rises sufficiently, it will get nothing out of any foreclosure sale of the property.

A reaffirmed second mortgage, however, becomes an otherwise-discharged that may rise again to pursue you after your bankruptcy where it might otherwise have simply lingered on with no material effect to you. It is extremely unwise and unnecessary to reaffirm a second mortgage, and, if your bankruptcy attorney, is advising you otherwise, consider the consequences before signing the agreement and question your attorney to ensure that there is some advantage to you in doing so.

If you are a Michigan resident and are considering filing for bankruptcy, please feel free to contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

Recently, however, some Chapter 7 bankruptcy Trustees in Michigan have been attempting to get bankruptcy cases re-opened and Orders of Abandonment revoked so that they may carve out a bit of an equity pay-out for the bankruptcy estate by essentially commandeering sales of debtors’ homes after the closing of the debtors’ bankruptcy cases. At this point, all of the judges in the Eastern District of Michigan have ruled on this process, and several of them are allowing this to occur when certain criteria are met. The most noteworthy of these criteria is when the bank underbids the fair market value of the home at sheriff’s sale.

Underbidding of this sort has been found by the Court to a constitute “a significant change in circumstances” justifying a re-opening of the case on a number of occasions and by a few judges in particular. Trustees are also leaving bankruptcy cases open for longer periods of time where property is being surrendered on the paper of the bankruptcy petition in order to wait & see if the house is sold sheriff’s sale for a low price.

Long story short, post-bankruptcy home-sales cannot be said to be done, “no problem.” Like everything else where a bankruptcy trustee is involved, it depends.

If you are a Michigan resident and are considering filing for bankruptcy, please feel free to contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

Your discharge shows up in the mail,

Most of the time, this is the right way to feel when you receive your discharge. However, some of the time, it’s still too soon to celebrate.

Contrary to popular belief, a bankrupcy case is not closed automatically when the discharge is issued. That is indeed the point in time where you can more or less feel secure in the fact that you are permanently free of the obligation to repay your pre-bankrutpcy debts. However, particularly with regard to the Trustee, the discharge does not necessarily mean that the case is closed and that everyone is done with you yet.

If the Trustee has recovered an asset from your bankruptcy estate and is in the process of liquidating it and distributing the proceeds to creditors, the case can remain open potentially for months after discharge while all of this occurs. With your discharge in hand, this may not sound particularly problematic, but, so long as the case remains “open,” it remains possible for the Trustee or creditors to file motions and conduct other actions that you might just as well prefer that they no longer do.

Additionally, if, after your bankruptcy, you have an interest in selling your home (short-sale or otherwise) or modifying your mortgage, you cannot do so without the Trustee’s approval. So long as the case is open and the Trustee has not explicitly, via a notice filed with the court, abandoned your assets, the Trustee remains the administrator of the bankruptcy estate, which contains all of your property. In short, you do not have the authority to sell your own house until the Trustee is done with it, and the bankruptcy case is closed.

Your bankruptcy attorney, if he or she is providing quality customer service, should be able to keep you abreast of when your case actually closes, as opposed to simply calling it quits once the discharge is issued. At a certain point, if the Trustee is not closing the case, it may be that your attorney needs to push the point with him or her and file a motion forcing the Trustee to abandon the assets for which the case is being kept open, or pursue other, proactive actions. Keeping you informed of such things is part of the service that we ought to be providing.

If you are a Michigan resident and would like to discuss whether bankruptcy is a viable option for you, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

A large percentage of people considering filing for bankruptcy

In general, the answer to the question, “Which should I do?” lies in your overall circumstances. There are some significant downsides and some significant advantages to each approach.

Primary factors to consider are:

• The entire picture of the individual’s debt. If you have other debt than that represented by the real estate in question, a short sale or mortgage modification may not be the best way to deal with it. A bankrutpcy is a mechanism that can deal with all of your debt-related problems in one sweep. If your credit card or medical debt alone is unamanageable, it is probably best to consider a Chapter 7 or Chapter 13 bankruptcy.
• The potential deficiency liability for a non-bankruptcy solution. In many states, including Michigan, you can be pursued for what is called a “deficiency debt.” This is the difference between what you owe for a secured debt such as a home mortgage loan under the terms of the note you signed securing and the amount that the foreclosing or short-selling bank sells the property off for. In some cases, this deficiency can be quite large, tens of thousands of dollars or more. If you incur a large deficiency through a mortgage modification or short-sale, you will either be collected from directly for that deficiency or you will receive a 1099 from the “forgiving” creditor. This 1099 means that the debt has been forgiven or charged-off, and such debt counts as taxable income for IRS purposes. You will have to pay taxes on this amount as if you earned it in income, should this occur. Unless the short-selling lender forgives your debt entirely in the short-sale agreement or manages to sell the property for the full amount that you owe, you will have a deficiency after a short sale.

  The surrender of property in bankrutpcy is an entirely tax-free event, and you cannot be pursued for any deficiency as a consequence. After a bankruptcy surrender, you can truly walk away from the property.

• The eligibility of the individual for forgiveness of deficiency tax liability. In some circumstances, under certain governmental programs, you may be eligible for forgiveness of tax liability arising from such a deficiency. You will want to discuss this with your accountant or CPA before agreeing to any short sale for a deficient amount.
• Whether the individual is eligible for a bankruptcy at all and, if so, what form.  It is possible that you may not be eligible for a bankruptcy or, based on your household income, eligible only for a Chapter 13 bankruptcy. If you have filed a bankruptcy anytime in the past 4 years and have received a discharge, you are not eligible to file again in the short term. There are other factors of eligibility to be considered as well, as well as the additional question of whether your income may make you eligible only for a Chapter 13 bankruptcy, a more involved form of bankruptcy than the straight Chapter 7 liquidation.
  
• Whether the home might actually be made more affordable and retained by the individual with a Chapter 13 bankruptcy. In some cases, a home that seems unmanageable may in fact be saved and made more affordable by the mechanisms available in a Chapter 13 bankruptcy. For example, if your home is worth less than you owe on a first mortgage, and it is a second mortgage or home equity loan that is making your home unaffordable, a Chapter 13 lien strip can liquidate the second mortgage entirely.

There are many other factors to consider as well, but the bottom line in making this decision is whether a bankrtuptcy can do as much or more for you as a short sale with less risk and liability. If the answer is “Yes” or even “Maybe,” you should consult a bankruptcy attorney to explore the full range of the available options.  If the house is your only real financial issue and you believe you can absorb any taxable consequences, a short sale may be worth exploring as an initial matter.

If you are a Michigan resident and have questions about the best way to handle undervalued real estate, please contact me at jhilla@aronofflinnell or (248) 977-4182 to schedule a free, initial consultation.