Bankruptcy vs. Foreclosure – Protect Yourself

BANKRUPTCY VS. FORECLOSURE – PROTECT YOURSELF

When we are unable to crawl out from unfortunate life circumstances, sometimes the only option is Bankruptcy (BK). Several of my client’s fell on hard times and chose this option. But a strangely diabolical phenomenon is happening, and you need to make sure you have your bases covered if this is the option you choose.

Bankruptcy vs ForeclosureAfter three years of being out of BK, if you have cleaned up your credit and have sufficient income, you should be able to secure a loan to purchase a new house. But what we’re finding more and more is that, even though you put your previous home into the BK, sometimes the banks don’t switch it out of your name, and don’t begin foreclosure proceedings to get it out of your name.

A recent client has been out of BK for almost five years. When he went to purchase a new home, we found that the home he had bankrupted and walked away from five years ago was still in his name. The bank had not even begun foreclosure proceedings! The way the loan laws read is that you must be at least three years behind any foreclosure. So after the bank gets around to foreclosing (that could take as much as another year for them to do that), then Mr. Buyer must wait AT LEAST three years after the home is out of his name to qualify for a loan to purchase a new property.

Cover yourself. If you own a home that is part of a bankruptcy, make sure it is taken out of your name at the time of satisfying your BK. Consult with legal counsel to follow through with whatever you need to do to transfer title (which is different than having your loan taken out of your name).  Consider giving the mortgage company a Deed-in-Lieu, Quit Claim, or whatever your attorney recommends. But don’t be caught in this emerging trap and find that it can be ten years after BK before you are able to purchase another home.