Need financial advice on bankruptcy

[thriftyqueen]

As I write this, my house is being inundated with flood water.  When it crests, it is expected that the waters will be 6 feet above our roof.  Most likely, the house will either be demolished from the waters or will be a total loss.  We have no flood insurance and 10,000-12,000 people in our town are in the safe situation right now.  We live on what they call a 500 year flood plain and most people don't even have the option of flood insurance because it is a 500 year plain.

FEMA is supposed to come in and help, but we have no idea how limited that will be with some many people in the same situation.  The city hasn't even been approved for individual assistance at this point.  

We are thinking we are likely going to have to file bankruptcy to dissolve our mortgage.  We owe $190,000 on the house.  We only have student loans (which bankruptcy would not cover) and a car loan, which we would like to keep.  We have (at the moment) outstanding credit and are very money conscious.  I never thought in a million years that we were going to be in this boat, but here we are.  We can't afford to pay on a house that is no longer livable or there and we need a place to live after this is all over.

On the so very positive note, we are safe.  Our cats are safe.  And we were able to bring most everything out of the house with us because we had time to evacuate.  Gotta look for the positives :-) 

Forgot to ask my questions (brain is not all there right now).  Is it possible to file bankruptcy in this situation?  What will we be required to do before hand?  If we have savings at all, will that be taken?  What about investments (retirement)?

[umarider]

Thriftyqueen, I couldn't read your post and not offer my sincere sympathy.  I am glad to hear that you, your family (including cats ) are safe and that you had time to bring most of your possessions out of the house.  Still, you are in a very difficult situation that was not of your making.  I hope that FEMA is able to come through for you and the other residents.  Obviously, you must do what works best for your family.

[Bokonon]

I'm so sorry you are being faced with this.  I have no experience with this, but I would just suggest that you stay safe and when you know more about the damage, start calling around (home insurance co., your mortgage lender, etc.) to get more information.  It might be helpful to watch your local news for info - I know that when we had wildfires here in San Diego, the news channels gave a lot of information about who to call and the important #s.

Best wishes to you and your family!

[thencamehenry]

What a hard situation.  I don't have any personal experience with the financial aspect, but my initial thought is foreclosure.  I would look into that first since you could possibly keep all your other finances separate.  I know foreclosure isn't ideal, but my understanding is that the drop in your credit score and the difficulty of buying a home in the future are the major drawbacks, and those are true of bankruptcy as well.  Your credit might actually recover faster if you show an ability to keep up with all your other bills. I have no idea how that works when there is no house for them to take back, though.  But the bank could have the land, I guess?  Lots of people are allowing their homes to go into foreclosure for worse reasons than you right now.

If I were in your shoes I would probably stop paying the mortgage and throw all that money into savings because this is literally and figuratively a rainy day.  I would talk to a bankruptcy attorney and a real estate attorney who specializes in foreclosures before you make any big decisions, and also let the emotions of such a traumatic experience settle. 

Like I said I am just a lady on the internet with an opinion, not a professional, so take all that as you will.  I'm curious to hear what others have to say.

[K1329]

Having gone through a natural disaster and having dealt with FEMA, I can say that I will be shocked if there are not grant programs put into place to help you. Many people I know received 100k plus grants to assist in rebuilding. I know you must feel overwhelmed & scared, but, don't give up hope nor plan too far ahead. One day at a time. Concentrate on what you are lucky to have - family, health, etc. You will put the pieces back together.
I would continue to pay my mortgage until I saw what assistance will be made available. Best of luck.

[thencamehenry]

On second thought, I would probably keep up with the mortgage for at least a month or two just to see where the dust settles.  And if you stop paying I would definitely keep 100% of the money set aside so you can catch back up if you go on that path. I don't know about your area, but where I live the vast majority of property value is in the land, not the structure.  It won't necessarily require $190k to rebuild.  The best financial option may be to stick it out and rebuild, even though I would imagine it to be quite stressful with months or years of uncertainty ahead.

[mar123]

I second what K139 said. There will be programs in place to help. There might be grants, but there will be loans. As soon as it is declared a disaster area, you will be eligible for all sorts of programs. not all are easy to navigate; you might be ready to pull your hair out by the end, but there will be help available. Also, after Katrina, many mortgage companies allowed people to stop paying their mortgage for 3 months- true, most of us were evacuated for at least a month, but it gave people time to get the lay of the land. My company allowed us to put the three months on the back end, some people had to make a three month balloon payment, but while going through the process of trying to figure out WTH we were going to do, it was nice not to have to worry. Do you have "loss of use" on your regular home ins. policy? If so, any money you spend while being evacuated will be refunded by the ins. company- doesn't matter why you had to evac. Loss of use is only about $6 a month and WELL worth it. It is nice to know that when an evacuation is called, we won't go broke.

BTW, anyone can get flood insurance. It is a federal program open to all. True, most don't think they need it, but things happen. I live in New Orleans, 1/2 block from the levee to the river; which is a flood zone. My flood insurance is 900 a year- so it would be much less for someone not in a flood zone.

[thriftyqueen]

Thanks for the info!  We will just be planning to wait to see how everything goes in the next days, weeks, and months.  My understanding with foreclosure was that the mortgage company could come after you and make you pay back the losses.  As in they could try to sell the land if the house is totally destroyed and then come after you for the remaining balance.  Is that true?