Many of us have bought into the American dream of owning a home. Homeownership is often seen as a symbol of financial stability and success.
But sometimes, the dream can become a nightmare, especially if you are underwater with your mortgage.
What does it mean to be underwater?
Being underwater on a mortgage means that the homeowner owes more on their mortgage than the home is worth. This situation is common when property values decline, leaving the homeowner with negative home equity. If they were to sell the home, they likely would not make enough from the sale to pay off the remaining mortgage balance.
This situation can be emotionally draining and lead to anxiety, frustration and depression. The stress is compounded when an unexpected crisis occurs, such as a medical emergency or job loss, and it becomes challenging to meet other financial obligations in addition to a high mortgage payment.
When facing overwhelming financial pressure, bankruptcy may offer a path to relief. The two most common types of bankruptcy pursued are:
Chapter 7 involves the sale of non-exempt assets to repay creditors. You will likely be able to keep your house if you are current on your payments and the equity in your house is less than the $35,000 homestead exemption. Since the goal of liquidating assets is to have money to pay off creditors, a house that is underwater doesn’t fulfill that purpose.
Chapter 13 bankruptcy is also known as reorganization bankruptcy. It allows you to restructure your debts into a more manageable three- to five-year repayment plan. It’s typically the preferred type of bankruptcy for people with a steady income.
Considering the panic and stress that accompanies financial troubles and an underwater mortgage, you will want to discuss your situation with someone who can calmly and logically review your options and guide you toward the best course of action.
