See: Foreclosure.
Ethan’s been sitting around for months, wondering when the bank is going to call him and let him know they’re foreclosing on his house. He hasn’t been able to make the mortgage payment for some time now, ever since he lost his job down at the hair extension factory. It’s really starting to stress him out, this whole waiting-to-lose-the-house thing, so he decides to take matters into his own hands. He calls the bank himself, and requests a voluntary foreclosure.
A “voluntary foreclosure” is just what it sounds like: it’s a foreclosure initiated by the borrower instead of the lender. In order to get this process going, we have to be at least one month delinquent on our mortgage. After that, though, the process can differ wildly from borrower to borrower. In Ethan’s case, he’s going to go meet with the lender like the adult that he is, set up a date on which he’ll relinquish the property, and outline any other details of the arrangement. For example, foreclosures are very bad for our credit score, but if he cooperates with the lender on the foreclosure, they might be willing to not enter harsh judgments against him, which means maybe his credit won’t be completely destroyed by the whole affair. Also, when we work with the lender in this process, we can usually accelerate the timeline, which means this whole foreclosure mess could be in our rear-view mirror in three months instead of six, nine, or even longer.
So what might a not-so-good-at-adulting voluntary foreclosure look like? Well, it could look like straight-up home abandonment. One day, people are living in a house and paying its expenses, and the next...poof, they’re gone. It might look like jingle mail, which is when a person just mails their housekeys to the lender and walks away. It might look like a strategic default, in which a borrower deliberately decides to stop paying their mortgage and bring on a foreclosure. All of these options are absolutely horrific for our credit, and if we decide to go the voluntary foreclosure route, we should probably not plan on being able to buy another home—or buy a car, or possibly even qualify for a new credit card—for a while.
Related or Semi-related Video
Finance: What is Bankruptcy?260 Views
Finance a la' Shmoop what is bankruptcy well in the old days
this was bankruptcy you'd go to prison if you couldn't pay your bills and [People in prison for bankruptcy]
unfortunately there weren't and still aren't a lot of legal high wage earning
opportunities in prison working your way out of debt on the chain gang wasn't [Prisoners working outside]
really a thing back then so instead the burden would be on your family to pay
back the loan you'd promised to pay back and didn't ugly situation it paved the [Officer knocking on a prisoners family member to pay their debts]
way for some well today bankruptcy has a range of flavors that it comes in but
basically it exists as a legal vehicle to avoid the aforementioned situation a [Bankruptcy van driving]
bankrupt person and/or corporation stands in front of a judge they turn
their pockets inside out with a sad face and the judge then decide who will be [Person opens their pockets inside out in front of a judge]
paid when and how much well how does she decide the order for who gets paid back
when? well, it usually prioritizes employees and vendors owed a paycheck
above banks who have made a loan and under that umbrella all different types
of loans have different priorities if the bankrupt individual owns a home it's [bankrupt individual in his home on the toilet reading a newspaper]
usually sold out from under him and anything left after paying off the
mortgage is used to pay others even if you do survive a bankruptcy your credit
is pretty much ruined who's going to want to loan you money once you've
proven that you're not good with being loaned money yeah if you've defaulted in [a really low credit score chart for a bankrupt individual]
the past on promises to pay people back why wouldn't you do the same thing again
well remember that twenty dollars you loaned your buddy Eric that he never [Person loaning 20 dollars to friend Eric
paid back well how eager are you going to be to hook him up with another twenty
especially since you'd only be feeding his betting on frog fighting habit yeah [Eric betting money on frog fighting]
not so much so long Eric you'll get the help you need!
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