Going through a Chapter 7 bankruptcy can be one of the most stressful moments in a person's life. One way that this process becomes even more burdensome is the way real estate is treated in the disposition process. While a homeowner can claim a homestead exemption, meaning the property can't be dissolved to resolve the debt, that does not prevent a home from being foreclosed upon if the borrower doesn't have the income to cover the mortgage payments.
One possible solution to this problem is to allow the disposition of property through auction similar to HUD's Claims Without Conveyance Title (CWCOT) program. Mortgagees and trustees could agree to reserve prices and set other parameters that are in the best interests of all parties. This could lead to fewer objections from the mortgagee and a reduced chance of the property going into foreclosure.
From the perspective of a servicer, properties sold using this system would solve a wide range of problems related to compliance risk, liability and asset management. From a trustee's perspective, it would be easier to fulfill his or her main responsibility of bringing as much value to the estate he or she manages as possible. For borrowers, this solution would make the entire bankruptcy process faster, making it easier to start building their financial health.
Individuals or families who own homes and are thinking about filing a Chapter 7 bankruptcy should speak with a lawyer about their options. Depending on the nature and level of debt, the disposition of a home may be required. It's the attorney's responsibility to maintain as much of his or her client's financial well-being and security as possible while providing a path toward greater financial health. Lawyers can provide support and guidance and represent their clients in court on their behalf.