- 1). Contact your lender or your bankruptcy trustee. If you are in Chapter 13, you probably already have a modified arrangement with your lender. If the modified payments are becoming difficult for you to pay, try to alter the payment schedule again with a monthly payment that is more manageable. The lender may be able to modify the interest rate or the length of the loan to bring down your payments.
- 2). Sell the home. A surrender will count as a foreclosure on your credit history. If you are upside down in the property, meaning you owe more than the property is worth, you will be responsible for paying the deficiency. However, if your house is in good shape and worth close to what you owe, you will end up better off handling the sale yourself.
- 3). Ask the bank about a short-sale. A short-sale is one in which the lender allows you to sell the home for less than what you owe on the mortgage. In most states the bank will forgive the deficiency in a short-sale. In other states, like Illinois, the bank considers the amount of the deficiency as a debt. Short-sales will impact your credit rating but not as significantly as a foreclosure.
- 4). Consider applying for Chapter 7 bankruptcy. Under Chapter 7 you may be protected from the deficiency amount between the home's value and what you currently owe. Contact a bankruptcy attorney to determine if this is the right option for you and your family.
- 5). Modify your Chapter 13 plan. Once you have exhausted all of your options and have made the decision to surrender the home, contact the trustee for your bankruptcy case. File a motion to modify your bankruptcy to include your home. This will subject your home to foreclosure. Contact your lender and let them know that the house is now under Chapter 13. The bank will work with your bankruptcy trustee to proceed with foreclosure.
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