Although the economic recession technically ended several years ago, Rhode Island residents have continued to feel the pressure from the stagnant housing market and high unemployment rate. As a result, many people have been forced to file for bankruptcy and let their homes go into foreclosure. If you are in this situation, you may have some questions about the relationship between these two processes and how it can affect your finances as you prepare to start over.
One benefit of filing for Chapter 7 bankruptcy during or after a foreclosure is that most property debts connected to the foreclosed home will be eliminated in bankruptcy. For example, the primary mortgage and any secondary mortgage loans will be eradicated, as will any lines of credit that are secured by the home and past-due utility payments.
In addition, if and when your home is re-sold, you will most likely not have to pay any property taxes incurred up to or during the sale.
Property insurance debt is also typically eliminated through the bankruptcy process. However, you may want to consider keeping your insurance up to date if you are still living in the house during the foreclosure process in order to protect yourself from any potential liability. If you have an impound account in which your mortgage lender pays the insurance, you probably do not need to worry about making these payments.
Finally, it is important to remember that homeowner association fee debts are generally not dischargeable through bankruptcy. This applies for the time that you are living in the home. Therefore, if you have already moved out of the house, you will probably not be held responsible for any future association dues.
Source: Bankrate.com, "Chapter 7 and property taxes," Justin Harelik