Allows the borrower to voluntarily turn over the property deed to the lender. In exchange, the borrower can walk away from the property without a deficiency judgment and without a foreclosure sale on his credit report. The owner will not owe any additional debt.
The lender may agree to this if the amount due on the loan is more than the value of the property. The homeowner sells the property to a third party at a fair market value and the lender agrees to accept less than the full balance due in satisfaction of a loan. (This option may have tax consequences.) Please note that if you are able to sell the house for enough money to pay off the mortgage you will not need bank approval of the sale price as you would for a potential short sale.
To qualify for Chapter 7 bankruptcy, you must earn less than a certain amount of money per year. Filing this petition will automatically suspend all existing legal actions and can forestall foreclosure. Once a court declares a party bankrupt, that party cannot file for bankruptcy again for 8 years from the date the bankruptcy petition is filed. Other types of bankruptcy such as Chapter 13, which is a repayment plan has other requirements. It is recommended you consult with a bankruptcy attorney.
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