Many different things can happen that can lead to a person's inability to keep up with their mortgage payments. Often, people first try to sell their homes in the hope that a sale will help alleviate the problem. If the house doesn't sell quickly, however, people may be left trying to decide whether they should seek a short sale or instead allow their mortgage company foreclose on the house.
Short sales, in which the lender agrees to the sale of a house for less than the amount of the mortgage, are not as good of an idea as they used to be. A law enacted in 2007 that prevented the IRS from counting the amount forgiven by the lender as imputed income has now expired. This means that people who get a significant amount of debt forgiven in a short sale may face a hefty tax bill as a result.
The foreclosure process may take a significant amount of time, allowing the homeowner to remain in the home for an extended period. In some cases, a borrower may be able to seek and receive a special or extended forbearance from the lender which can last for up to 24 months.
Of course, many people want to avoid foreclosure of their homes. It is in some cases possible to do so through filing a Chapter 13 bankruptcy petition. With that type of bankruptcy, people are able to reorganize their debt and have a longer period of time during which they can catch up on their mortgage payments. The repayment plan of a Chapter 13 bankruptcy case can last between three and five years, during which a stay issued by the court will halt the bank's foreclosure action. People who want to find out if Chapter 13 is right for them may want to seek a consultation with a bankruptcy law attorney.