Expert: Terry Leeders - 9/10/2009

Question
Hi,I'm very confused at the moment. I live in Florida with my fiance,we're getting married in October (23 years old),so we will be filing together. We purchased a home a little over 2 years ago through Suntrust Mortgage,for 73,000$.Home was 123,000,but we got a first time home buyers grant/loan for 50,000$. The 50,000$ is called a second loan I guess and is not payable unless the home goes into default or if we move out before 15 years..If we followed those rules the loan would not have to be payed back!
However,last year we went into foreclosure but were able to make a deal with the mortgage company and did a loan modification and the foreclosure was stopped!
Now,we've fell behind again and are now 4 months behind,and they said are most likely going to start the foreclosure process again.
My question is this:
Our home is no where NEAR going to sell through foreclosure what we owe on the loan..So after foreclosure we will still owe the remaining balance as well as the 50,000$ back.
We don't even make 26,000$ a year. There's no way for us to pay this back. I'm trying to figure out what we can do...We're okay with losing the house because we don't want to be in this situation EVER again..while our friends are all worried about what they're gonna wear out on Friday night,we're worried about all of these financial difficulties we've got ourselves into...we tried to grow up TOO fast and are now sinking deeper and deeper..now the hole seems to deep to get out of!
I was wondering about chapter 7 bankruptcy...Does it seem from what I've said we would be able to file for this (We have credit card debt,400 here,500 there,and some medical bills,all have been sent to creditors) ..
Would we try to file for Chapter 7 while going through foreclosure  or wait until after it has been foreclosed on and then file on the remaining amount owed,plus the 50,000$?? I'm just not sure how all of this works.  

Answer
You can file at any time, however, it is usually better to file before the foreclosure is complete, otherwise if the bank writes off the debt, that can be charged as income to you. Once the BK is filed, that debt is eliminated 100%,and the foreclosure will continue to transfer title back to the bank so they can sell to recoup their losses.