What Happens To Your Mortgage When You File Bankruptcy
Home loans, like mortgages, home equity loans, or home equity lines of credit are secured debts. This means the bank has a sort of ownership interest in the real estate. As long as you make your monthly payments, the home is yours to keep. If you donât pay your mortgage, the bank can take the house back by way of a foreclosure. Thatâs true even after you get a bankruptcy discharge.
Because of this, keeping your home means keeping your mortgage. Thereâs no such thing as a free house.
Asset Conversion That Could Be Considered Fraud
Converting nonexempt assets into exempt property in bad faith or with the intent to hinder or defraud your creditors can rise to the level of bankruptcy fraud. Each bankruptcy jurisdiction has its own opinion regarding the type of exemption planning that is permissible.
When analyzing whether your actions constitute fraud, courts consider:
If Your Income Increases During Your Chapter 13 Bankruptcy
If your income increases during your Chapter 13 bankruptcy that increase must be reported to the bankruptcy trustee and it may impact how much you pay to your creditors. However, in a Chapter 7 bankruptcy, if you have a HELOC you will need to repay it only if you want to keep your home or you can discharge it and your mortgage loan and surrender the home to the lender. Its important for each debtor to carefully weigh the feasibility of keeping their home. Ask yourselfcan I really afford to keep this home?
If you do not earn enough income and attempt to keep your home during bankruptcy, you could possibly face foreclosure after your bankruptcy and end up in a bad financial situation again.
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Different Types Of Bankruptcy
For individuals, there are two main types of bankruptcy cases. Most individual debtors file for Chapter 7, which can also be described as âstraightâ bankruptcy or âliquidation.â Under this plan all non-exempt assets are converted to cash , and secured creditors may have the item they financed turned over to them , unless the debtor reaffirms the debt with the courtâs approval prior to obtaining a discharge. Chapter 13, also called âreorganization,â is an option for people with regular income and debts that are less than the limits allowed by law. When you complete a Chapter 13 plan, you have the satisfaction of keeping your assets, paying your creditors, and possibly discharging some of your debts.
Bankruptcy is a serious step. If you choose to file Chapter 7 or Chapter 13, you will probably need to hire an attorney. Be sure to find an attorney who has experience handling the type of bankruptcy case you plan to file. The following overview of Chapter 7 and Chapter 13 will give you some idea of whatâs involved.
Do I Qualify For Chapter 7 Bankruptcy
You don’t need a particular amount of debt to file, but it should be enough to justify having a bankruptcy on your credit report for up to ten years. At least $10,000 or more is a good rule of thumb.
However, you’ll have to show that you don’t make too much to qualify. You’ll have two chances to pass because it’s a two-step process. The first step is relatively simple, but the second stepnot so much, so hopefully, you’ll qualify after the first portion.
Here’s what you’ll do for the first part of the “means test“:
- Add all household income earned during the entire six months before filing .
- Divide the total by six and multiply it by 12.
- Compare your gross family income amount to the chart on the U.S. Trustee Program website
- You’ll pass if your gross family income doesn’t exceed the amount listed for your family size.
If you don’t pass, you’ll figure in your expenses. If you want to know what you’ll be able to deduct, take a look at the means test calculation form. But try not to get overwhelmedit’s not easy for anyone to decipher.
Colton’s Case: Colton makes too much to pass the first part of the means test. However, deducting his car payment on the second portion will bring his disposable income into the qualifying range.
Hannah’s Case: Hannah’s only income for the past six months has been unemployment benefits. She passes the first part of the means test quickly.
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Can I Keep My Home
We understand that your house is likely your most valued possession. There are exemptions that allow you to keep some of the equity in your home when you file for bankruptcy. Generally speaking, however, if youve already paid off a large portion of your mortgage , filing for bankruptcy might not be the best solution for youthe law requires you to use that equity to pay off some of the money you owe to your creditors.
To keep your home after filing a bankruptcy, you would need to pay a Licensed Insolvency Trustee the amount of home equity you haveminus any provincial exemptions. Home equity is calculated by subtracting the remaining amount of your mortgage, along with any outstanding taxes you owe, from what your house is currently worth on the market. For example:
For example: Current market value of Bobs home: $150 000
|Bobs estimated home equity||$19 400|
Depending on which province he lives in, Bob would have to pay up to $19,400 during the bankruptcy process in order to keep his home. This is one of the reasons why bankruptcy is only considered after other debt relief solutions have been explored. If Bob can afford to repay a portion of his debt, but not the full amount of equity in his home, he may wish to consider an alternative to bankruptcy, such as a consumer proposal. A Licensed Insolvency Trustee will be able to explain every option to help Bob choose the best solution that is right for him.
Will All Of My Debts Be Canceled In Bankruptcy
It depends on the type of debt you have. Bankruptcy is a good vehicle for eliminating credit card, medical debt, deficiencies resulting from repossession or foreclosure, and other unsecured debt. In a Chapter 7 bankruptcy, this debt is discharged at the end of your bankruptcy. In Chapter 13 bankruptcy, you may have to pay off a portion of your unsecured debt through your repayment plan. Keep in mind that if you have debts secured by property , the cancellation of the debt does not mean you get to keep the property. To learn what happens to secured property in bankruptcy, see Bankruptcy FAQ .
Some debt is never discharged in bankruptcy — including child support and spousal support arrears, student loans , and tax debts first due within the previous three years. To learn more about which debts can be wiped out in bankruptcy, see What Bankruptcy Can and Cannot Do.
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What Do You Lose When You File Bankruptcy
Most bankruptcy filers donât lose anything, actually. Property you own free and clear is yours to keep as long as thereâs a bankruptcy exemption to protect it.
Property that secures a lenderâs right to payment of a secured debt is yours to keep as long as you pay for it. The bankruptcy trustee doesnât even really get involved.
Protecting Your Home Equity In Chapter 7 Or Chapter 13 Bankruptcy
Start by determining whether you can protect all of your home equity in bankruptcy. You must complete this critical step in both Chapter 7 and Chapter 13 bankruptcy.
In both bankruptcy chapters, you protect an asset with a bankruptcy exemption. Each state has a list of exemptions, so the property type and amount of equity you can protect using state exemptions varies widely.
Only a few states let you keep all of your home equity when you file bankruptcy. Most states have a much lower “homestead exemption.” Here’s how the homestead exemption works in chapter 7 and 13.
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What Other Property Is Exempt
The exemptions in most states, like the federal exemptions, allow you to keep your household goods, clothing, and personal effects, unless they are unusually valuable. A certain amount of cash is generally exempt, as is other property.
If you are married, you may be able to combine your exemptions with your spouses. In many instances, debtors keep everything they own after filing bankruptcy. A bankruptcy attorney can review your assets with you to advise you how to maximize the amount of property you can keep.
Can You Keep Your Car If You File For Bankruptcy
Most provincial regulations include an exemption for some or all of the value of your car, especially if it is needed for your occupation. If you are making payments on your car, retaining the car will depend partly on whether you can continue the payments. A Licensed Insolvency Trustee can explain how the regulations will apply to your specific situation.
Provincial exemptions for homes and cars can be confusing, especially when considering mortgages and leases. A Licensed Insolvency Trustee will gladly help you learn how these assets would be affected in a bankruptcy. Your conversation is confidential and you are under no obligation. Contact a Trustee today!
Bankruptcy Exemptions by Province and Territory
- ;;; The exemption lists we provide below are simplified summaries of the law
- ;;; Even where there is no dollar limit, exemptions are limited to what you and your dependants really need
- ;;; The provinces often adjust the exemptions for various reasons, such as inflation
For interpretation of the rules in your case, we strongly recommend that you contact a Licensed Insolvency Trustee to review your situation and determine which of your assets will be exempt if you file for bankruptcy. You should be completely clear on what you can keep if you go bankrupt in Canada, versus what you may lose.
Please choose your province or territory:
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Your House In Chapter 7 Bankruptcy
If you file for Chapter 7 bankruptcythe kind that gets rid of debt most quicklyyou can keep your house under two conditions: Youre current with your mortgage payments when you file , and the laws in your state allow you to protect all of the equity you have in the property. By giving you relief from other kinds of debts, like credit card or medical bills, bankruptcy can free up money to help you keep up with your mortgage. Most of our readers had this experience: 68% of those who went through Chapter 7 bankruptcy were able to keep their home.
If youve already fallen behind on your mortgage payments when you file for Chapter 7 bankruptcy, youre likely to lose your house. Filing for bankruptcy lets you stay in your home another month or two, but ultimately, the bank will foreclose on the property. But if the foreclosure sale price is less than what you owe on the mortgage, your remaining mortgage debt can be discharged in bankruptcy. Our readers who lost their houses reported an average discharge of $130,000 in mortgage debt after filing Chapter 7.
Bankruptcy Exemptions In Manitoba
- Furniture and household appliances up to $4,500
- No limit on clothing for you and your family
- Food and fuel necessary for you and your family for six months, or the cash equivalent
- Tools of your trade up to $7,500
- One motor vehicle up to $3,000 when used for business or transportation to work
- Articles and furniture necessary to perform religious services
- No limit on health aids for you or your family
- If you are the sole owner of your home, up to $2,500 in equity is protected; if you co-own your home, the limit is $1,500
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In Indiana What Property Can I Keep
In a chapter 7 case, you can keep all property which the law says is exempt from the claims of creditors. Indiana exemptions provides a list of the exemptions available for Indiana. In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement. You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it. While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didnt file bankruptcy.
Keep Track Of Your Credit During The Process
Bankruptcy can harm your credit history and your ability to do certain activities in the future. Therefore, its important to track your credit scores throughout the process and while you work to recover.
You should also keep track of how different activities affect your credit scores. Also, be alert for potential mistakes and bad information that could harm your score.;You can dispute any information on your credit reports that you find to be incorrect.
If you keep track of your credit scores throughout bankruptcy, youll be able to learn more about ways to improve them over time.
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How Much Equity Do You Have
Equity is the amount of the house you own based on the amount of money youve paid towards the loan principal. In other words, it is the market value of your property after subtracting the amount still owed towards your mortgage or home equity loans. When bankruptcy filers have little or negative equity in their houses, they can take advantage of bankruptcy exemptions and can keep their houses.
Trustees only consider the equity in your house when deciding whether you qualify for the bankruptcy exemptions under Chapters 7 or 13.; If you have more equity in the home than the exempted amount, you will have to sell the house to pay back your debt.
Debt Collectors Won’t Leave Me Alone Will Bankruptcy Stop The Harassment
Yes, bankruptcy’s automatic stay requires most creditors and debt collectors to stop all collection efforts against you until the bankruptcy is over.
But if all you want to do is stop debt collectors from contacting you, there is an alternate route. Under the Fair Debt Collection Practices Act, you can request that debt collectors stop contacting you. Send a letter stating that you want the collection agency to cease all communications with you. All agency employees are then prohibited from contacting you — except to tell you that collection efforts have ended or that the collection agency or original creditor intends to sue you or take advantage of some other legal remedy.
Keep in mind that this remedy only applies to debt collectors. Creditors can continue to contact you . To learn more about dealing with debts and debt collection agencies, see Debt & Collection Agencies section.
Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people; debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.