Mortgage Bankruptcy and immediately purchasing a smaller home with a cosigner?

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I am recently divorced and left with two mortgages, credit card debt, student loans, a son to take care of, and no child support. If I can sell my house, I will be lucky to break even. I am considering bankruptcy and including my house to simply walk away and let the bank have the keys. I have a good job, but am so buried by debt right now I am living off credit cards. Currently all of my payments are current on the house and credit cards, but I can’t keep that up.

Understanding that bankruptcy does not include student loans, can anyone give me some advice on if this is the right thing to do? Additionally, would I then be able to purchase a small townhouse to move into with my son if my parents are willing to cosign the new mortgage with me?

Thanks for any suggestions!!!!
Please note:
-there is no equity in my home between the two mortgages. Zero.
– I have a child support order, but am not getting a dime
– I have just deferred my student loans for 6 months

  1. Reply
    January 25, 2011 at 10:41 am

    There are a few variables here that you have not addressed. Most importantly, do you have equity in the house? If you do, it may be an opportunity to catch up on that credit card debt and save your credit. Sell the house as quickly as you can and get what you can from it.

    Even if you do not have equity on the house, if you can sell it for what you owe on it you will be better off than the bankruptcy route. You do not say what your credit score currently is but if you are making your mortgage, cc and student loan payments it is probably good enough to get another mortgage on your own. If you cannot sell the house, can you rent it out temporarily until the market improves? Can you get a trusted friend or family member to rent a portion of the house?

    Examine all of your options before bankruptcy. There is the possibility that you could do a short sale of the house if it is worth a lot less than is owed. This would be a better option than a bankruptcy.

    Best of luck, I hope this helps.

  2. Reply
    January 25, 2011 at 11:14 am

    Tough situation. If you have huge debts you can’t possibly pay off (and it’s almost impossible to pay off credit card debts, what with the high interest they charge), then I’m a firm believer in filing for bankruptcy, getting the debts cleared, and starting over. That way, you’ll get to keep all your salary and have a chance to stay out of debt. However, don’t decide until you first consult a bankruptcy lawyer and find out if you can, indeed, get all the debts written off once and for all.

    You won’t get a new loan till the bankruptcy discharge becomes final and you pay off the existing mortgage, even with co-signers. You’re too much of a risk. Try to sell the house instead of allowing a foreclosure–foreclosure adds a lot of fees and penalties to your debts.

  3. Reply
    January 25, 2011 at 11:43 am

    if you filed chapter 7…you will need to wait 2full years…..if chapter 13…then 1yr.
    you would also need to start rebuilding your credit after the bankruptcy. FHA is the way

  4. Reply
    January 25, 2011 at 11:59 am

    You wouldn’t be able to be on the mortgage immediately following a bankruptcy, especially if it included the home. Bankruptcy is a tough decision so you want to make sure you look at all options first, including possibly cashing out of any equity you have to pay off the credit cards.
    Maybe not the best choice, but you need to get the payments to something you can make each month.
    If none of these are options then bankruptcy may be the best option for you. If you have to do it, keep in mind you’ll probably be renting for about a year or so.

  5. Reply
    January 25, 2011 at 12:35 pm

    First thing to do is file for child support, above all else do that it will increase your income. Then apply for a forbearance on your student loans, because of financial hardship for twelve months, yes they will acquire interest, but you do not have to make payments, and it does not show up as a negative on your credit score. Next quit living on your credit cards, that is only burying you more, This should give you some flexibility, and liquidity that you need to hold onto your home. The support and forbearance alone should help you pay off your credit cards, and improve your credit while enabling you to keep your home.

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