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Going Bankrupt in 2012, but Keeping Your Home

NEW YORK ( TheStreet) -- Despite the apparent economic improvement, with the unemployment rate finally moving below 9% in November, millions will still face the possibility of losing their home through foreclosure in 2012.

While it's not a "magic bullet" that can discharge a first mortgage loan on your residence, filing for bankruptcy can buy you some time, force a mortgage lender or servicer to negotiate with you, and eliminate a significant portion of other unsecured debt, depending on your circumstances.

According to regulatory data provided by SNL Financial, the "big four" U.S. banks had huge amounts of one-to-four family residential loans on their balance sheets and serviced for others, for which the underlying homes were in the midst of the foreclosure process as of Sept. 30:
  • Bank of America (BAC - Get Report) had $23.0 billion in residential mortgage loans on its balance sheet with homes in foreclosure, while loans serviced for others in foreclosure totaled a whopping $90.6 billion.
  • for JPMorgan Chase (JPM - Get Report), residential mortgage loans in foreclosure totaled $28.9 billion, while loans serviced for others in foreclosure totaled $54.7 billion.
  • For Wells Fargo (WFC - Get Report), one-to-four family mortgage loans on the balance sheet with collateral homes in some phase of foreclosure totaled $18.1 billion, while loans serviced for others in foreclosure totaled $37.7 billion.
  • Citigroup (C - Get Report) reported $6.9 billion in residential mortgage loans in foreclosure on the balance sheet, and $10.3 billion serviced for others that were in foreclosure.

While President Obama's expansion of the Home Affordable Refinance Program , or HARP, will allow millions of borrowers with mortgage loans held by Fannie Mae (FNMA) and Freddie Mac (FMCC) to refinance their entire balances at today's low rates -- even if the borrowers owe significantly more than the homes are worth -- HARP is only available to borrowers who have been current on their loans over the past six months, and the Fannie/Freddie loans only represent about half of U.S. mortgages.

Filing for bankruptcy, of course, can't be taken lightly, and you will need the help of an attorney.

According to Geoff Walsh, a staff attorney with the National Consumer Law Center, "the first threshold question that people need to consider when they're looking at bankruptcy as an option for foreclosure is whether all of their major assets are covered by state exemption laws."

For example, in New York $100,000 in home equity is exempt if you go through bankruptcy. This means that if the difference between the market value of your home and the outstanding liens on your home is less than $100,000, you will emerge from bankruptcy still owning your home. If you have more than $100,000 in home equity, the bankruptcy trustee will sell the home, give you $100,000, and pay the rest to the mortgage lien holder.
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