At this point, there are four real options available post-discharge with respect to your house.
- If you have been making payments regularly, you are probably not worried about losing the house, and as such continue making your payments, if you can afford to do so.
- If the monthly payment is higher than you can afford, you can consider looking into a loan modification. Be aware that this process requires a lot of paperwork and financial disclosure, often to a greater extent than your bankruptcy did. The bank will look at your current and anticipated income and expenses to determine if modification of the loan is appropriate. While you may end up with a lower payment, no bank will knock off any of the principal balance. The best scenario that I have seen is one where the bank will roll the arrears into the back end of the mortgage, reamortize from a 30-year note to a 40-year note, and have a balloon payment of the arrears come due sometime in the future. Ideally, you will not have to worry about a substantial balloon payment, as you may have sold the property or refinanced the property by that point.
- Offer the property back to the bank by way of a deed in lieu of foreclosure or mortgage release. This is also paperwork intensive, although not as much as a modification is. However, note that if there are inferior liens on the property, obtaining relief in this manner may be difficult, as junior lienholders will want to get paid as well. If the bank is willing to accept your surrender of the property, the bank may also be willing to do a "cash for keys," where they provide moving expenses in exchange for your vacating the premises by a date certain.
- Do nothing. That's right, do nothing. Upon your discharge in Chapter 7, your personal obligation to pay the mortgage is extinguished. However, the lien is generally not extinguished upon your discharge, and the lender will have the right to foreclose at some point down the line. How long it takes the lender to initiate and conclude foreclosure proceedings cannot be predicted based on past results, however. I have seen homes languish in limbo for 3 to 4 years, while other houses I have seen the lender move rather quickly through the process. At some point, however, the house will be put up for sheriff's sale, where third parties can bid on the property. If the property is sold for a lower price than the bank asks initially, you will not be liable for any deficiency that arises from that sale (although to be fair, banks will almost never pursue deficiencies in residential foreclosure actions). Sometimes, nobody bids on the property, and the bank is forced to buy it themselves for a nominal fee. In New Jersey, you have a 10-day period after the sale in which to "redeem" the property, or purchase the property back before the sheriff tenders the deed to the successful bidder. Once that 10 days have run, you no longer have any legal right to possession of the property. Also important to note that if you want to file bankruptcy after a sale is conducted to prevent ejectment from the property, you MUST file that during the redemption period. You cannot escape an action in ejectment after the redemption period has expired, even if you file bankruptcy. Once the redemption period is over, the sheriff will tender the deed to the successful bidder, and they will have the right to file an action in ejectment, which is analogous to an eviction in a tenancy. At that point, negotiation of a "cash for keys" or a date certain to vacate the property is entirely possible, and may be to your benefit, as it will give you an idea of how much time you have to look for alternate arrangements.