BASIC HISTORY:
I live in Southern California and I am one of the "fortunate" one that is in the current mortgage ARM crisis. December 2008 my "fixed rate" ARM will then go adjustable. My mortgage is $3400.00/month - not including taxes or insurance. Houses in my area have been on the market for 8 months and now my house isn't worth what I paid for it.

I am self employed and business has taken a nose dive over the last year. I am struggling to keep afloat. I have maxed out my credit cards paying Peter by "borrowing" from Paul. I am paying minimums on all the cards.

My current credit score is 705.

I am contemplating moving to New Mexico (where it is cheaper than California), buying a house. I would let the California house go into foreclosure and file bankruptcy. What would be the ramifications of doing this or is this possible?

Dr D

I assume that you have a "Purchase Money Mortgage" on your home that is secured by a Deed of Trust. If the lender uses the the D of T statute to foreclose on the home then they cannot get a deficiency against you. If they do a Judicial Foreclosure (which they probably won't), then they could get a deficiency judgment against you. For more info do a search for "CA foreclosure deficiency". Discuss the possibility of doing a "Short Sale" with your Realtor. That i where the lender may be willing to settle for less than is owed on the loan. That course is better than a foreclosure. A foreclosure or short sale MAY result in tax consequences. If you are able to hang on with your current payment, the lender MAY be willing to modify the loan for a time, and keep the payments the same. Give them a call, because the lender doesn't want a foreclosure either. Good luck.

ScottGem

To add to what Dr D said, going foreclosure or bankruptcy will certainlyaffect your ability to get financing for another home purchase.