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.
Option 4 Do Nothing Keep Paying
Why sign a document or cough up big money you dont have?
In the old days, you could simply do nothing and continue making payments after your Chapter 7 bankruptcy. The lender got paid, you kept the car or house. It was a classic win-win situation.
Not necessarily so anymore, though. Depending on the type of property, the lender and the specific facts of your case it may not work for you to keep making payments and hope to keep the property.
You and I will need to talk about this option if thats the one you want to take. The last thing I want to see is a situation that blows up in your face, spoiling your plans.
Is A Chapter 7 Bankruptcy Right For Me
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out your debts in exchange for your giving up property, except for exempt property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
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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:
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Does Bankruptcy Discharge Mortgage Debt
The answer to this question really depends heavily on the type of bankruptcy being filed. Well go over the scenarios for Chapters 7 and 13 bankruptcies because these are the most common, but if you have any questions, please consult your bankruptcy attorney.
We referred to Chapter 7 above as the wipeout bankruptcy because youre relieved of your responsibility for the debt. However, if you want to keep your home and car, youll need to keep your mortgage and car loans. If you dont stay current on your payments, your mortgage lender can foreclose, and the car can be repossessed.
Chapter 13 bankruptcies are about reorganization, so you can use this type of bankruptcy to pay back debts according to the timeline in your plan while staying current on any mortgage payments after the bankruptcy is filed. Unlike Chapter 7, under Chapter 13 bankruptcy, youre still responsible for the debt.
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What If I Have Very Little Equity
If you have recently mortgaged or re-financed your home, you may have very little equity in it . If this is the case, there is a chance you can keep your home, and continue your mortgage payments, if you can find a way to pay this amount into the bankruptcy through other means. This is a matter you can discuss with a Licensed Insolvency Trustee for clarification.
Negotiating With Other Creditors
While your mortgage is significant, its obviously not your only bill. Other lenders and creditors may work to negotiate with you if you can go through the process of proving hardship. If you can come to an agreement, you may be able to settle your debt, even if its less than what you owe.
It can be tempting to let unsecured debt default, but doing this will really hurt your credit score. Instead, we suggest working something out. Paying something may make a creditor more receptive to giving you some debt relief.
Theres still a credit ding that comes along with having an account thats paid as agreed rather than being paid in full, but its better than having an account that goes to collections or charge-offs. Some money is better than no money, and it does help lessen the effect on your credit score.
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I’m Facing Foreclosure And Want To Keep My Home Is Bankruptcy My Best Option
Filing for Chapter 13 bankruptcy can be a good way to save your home from foreclosure. Chapter 13 bankruptcy lets you pay off a mortgage “arrearage” over the length of a repayment plan approved by the court — usually between three and five years. For this option to work, you’ll need enough income to at least meet your current mortgage payment at the same time you’re paying off the arrearage.
In Chapter 7 bankruptcy, if you have sufficient equity in the home, the bankruptcy trustee may sell your home to repay unsecured creditors. Given the state of the real estate market, this rarely happens these days. But if you’re behind on your mortgage payments, Chapter 7 doesn’t provide a way for you to catch up, and the lender will likely get permission from the bankruptcy judge to go ahead with a foreclosure.
If your only goal of bankruptcy is to save your home, be sure to consider other alternatives first. You may be able to negotiate with your lender to deal with arrearages or get government help to modify your loan terms. To learn more about ways to save your home, see How to Avoid Foreclosure.
When The Trustee Abandons Property
In Chapter 7, the Chapter 7 trustee cannot take any exempt property. However, if you have nonexempt property, the trustee can sell it and use the proceeds to repay your unsecured creditors. Sometimes the trustee decides that it’s not worth seizing and selling your nonexempt property. In that case, the trustee may “abandon” the property.
The trustee will abandon property in several situations. Here are a few.
The Property is Upside-Down
Secured property is “upside-down” when the value of the loan secured by the property is more than the market value of the property. Car owners are often upside-down on their car loans. For example, a debtor takes out a five-year loan of $25,000 to buy a brand new Toyota, but due to losing her job the debtor must file for bankruptcy two years later. The debtor still owes $20,000 on the Toyota, but the market value is only $15,000. The debtor is now upside-down on the car loan.
In the example above, the trustee will likely abandon the car. Once the secured creditor is paid, there will be no additional funds with which the trustee can pay unsecured creditors. Therefore, it is not worth the trustee’s time or expense to liquidate that car.
Costs of Sale and the Trustee’s Commission
- surrender the property to the creditor
- redeem the property by paying the creditor the market value of the property
- reaffirm the debt , or
- keep the property without reaffirming the debt.
Learn more about keeping a car in bankruptcy.
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Filing For Bankruptcy And Keeping Your House
You are probably wondering If I file bankruptcy, what happens to my house? After filing for bankruptcy, generally, all your property gets listed on a schedule form and goes into a bankruptcy estate managed by a trustee. This doesnt mean you lose your home in Texas, however, because of the Homestead Exemption.
Your Personal Credit Card
You can try to open another credit account after your bankruptcy case is over. In fact, youll probably start receiving offers within a few months. Most of those will be high fee/high-interest cards or secured credit cards, but theyre a way to get back in the game and get a card for your next business trip.
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Should You Keep The House
A different question is whether it is a good idea to keep the house if it is fully encumbered .
Sometimes, debtors have taken out home equity loans such that all of the value in the property is pledged to lenders. Or the value of the house has plunged due to the economy around us. Or, the cost of paying the mortgages is greater than the cost of renting comparable housing.
Part of getting a fresh start may be walking away from real estate that is a greater burden than an asset.
Its just a house. Home is the people who live together.
Do Federal Or State Exemptions Apply And Which State
Congress created a set of exemptions in the bankruptcy code but allowed each state to opt-out of those exemptions in favor of state law exemptions. Sixteen states allow debtors to choose between federal and state exemptions. The other 34 states require use of their own exemptions.
Youll need to consult state law or search National Bankruptcy Forums Consumer Laws by State section for the list of specific exemptions available to you. In order to use a states exemptions, you must have lived in that state for two years prior to filing. If you havent lived there for two years, you must use the exemptions of the state in which you lived for most of the six months prior to the two-year look-back period.
For example, say you were born and raised in North Dakota. On January 1, 2016, you moved to Arizona. Its now May 1, 2017 and youre filing for bankruptcy. You havent lived in Arizona for the two years necessary to use the Arizona exemptions. So, you have to look back two years to May 1, 2015 and use the exemptions of the state you lived in for the six months prior to that date. Because you lived in North Dakota during the relevant period, youll use the North Dakota exemptions.
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How Do Bankruptcies Affect A Joint Mortgage
If one person files for bankruptcy, that can have an impact if you both are on the mortgage. There are instances where one persons bankruptcy can cause issues with keeping the home, even if more than one of you is on the mortgage. In order to be fully apprised of what can happen, talk to your attorney.
Will I Lose My House If I File Chapter 13
If the net equity in your home exceeds the maximum bankruptcy exemption or you are behind on mortgage payments, filing Chapter 13 could save your home from foreclosure.
A Chapter 13 bankruptcy is a reorganization. You repay some of your debts through a Chapter 13 bankruptcy plan. In your bankruptcy plan, you can catch up on past-due mortgage payments over time, allowing you to keep your home in bankruptcy. Also, Chapter 13 allows you to pay an additional amount to your unsecured creditors if your homestead exemption exceeds the maximum bankruptcy exemption. By paying a little extra each month through your bankruptcy plan, you keep your home. You may want to continue to make your payments throughout the plan. For example, if you stop making mortgage payments, the stay may be lifted and your creditors may try to collect on that debt.
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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.
What Is An Automatic Stay
After you file for bankruptcy, you have the protection of an immediate, but temporary, automatic stay. The automatic stay can, for example, immediately stop a foreclosure, an eviction, car repossession, or wage garnishment. It can also stop debt collection, harassment, and disconnection of utilities.
The automatic stay may provide a powerful reason for filing for bankruptcy. In most of the situations listed above, the automatic stay can buy you a few days or weeks in which to figure out your next move. If your primary motivation in filing bankruptcy is to gain the benefits of the automatic stay, you donât need to file all of your papers at once. You just need to file the three-page petition, a signature declaration, and a listing of your creditors. In addition, within 180 days prior to filing, you will have to visit an approved credit counseling agency for advice and budget analysis. You will have to file a certification of such counseling when you file your petition. You have 15 days in which to file the rest of your papers. If you donât, your case will be dismissed.
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What About Chapter 13 What Happens With My Existing Mortgage
With a chapter 13 bankruptcy, borrowers will not lose their property. You will include details on how you plan on paying your mortgage in your repayment plan. In most cases, an automatic stay is issued once Chapter 13 is filed. An automatic stay means that creditors must stop collection efforts.
It was designed to temporarily halt foreclosure and stop repossession of homes regardless of the stage of the foreclosure proceedings. For homeowners with too much equity to qualify for a homestead exemption in their jurisdiction, this is an advantage of a Chapter 13 filing.
There are a couple of important caveats here: First, you have to stay current on any mortgage payments that are due after the filing. If youre behind on your payments, missed payments can be included in your reorganization plan, but you have to make sure all these debts are paid back by the end of your plan timeline.
When Your House Isn’t Exempt
Ordinarily, in a Chapter 7 bankruptcy, you must relinquish any nonexempt property to the bankruptcy trustee responsible for administering your matter. However, just because you can’t protect all of your equity doesn’t necessarily mean that you’ll lose your property.
Most Chapter 7 trustees won’t attempt to liquidate nonexempt property unless the effort nets a meaningful payment on your unsecured debt, such as credit card balances, personal loans, and medical and utility bills. In other words, after the trustee pays out the required amounts, there must be money left over. So, although there are no hard and fast rules when deciding whether to liquidate your home for the bankruptcy estate, the trustee will consider the following:
- the appraised value of the property
- costs of sale, including sales commissions, necessary repairs, inspections, etc.
- balances on any mortgages
- the existence of other liens, like tax liens, outstanding property taxes, mechanic’s liens, etc.
- whether the proceeds will be split with a co-owner
- how long the property will be on the market
- amount of the trustee’s commission, and
- amount of unsecured debt you owe.
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Chapter 13 Vs Chapter 7
If your home or vehicle exceed the exemption amounts under Chapter 7, the bankruptcy trustee can sell the property, pay your mortgage lender or your auto loan lender what they are owed, use a portion to repay your unsecured creditors, and pay you the exemption amount. You might be able to talk the trustee into allowing you to pay the excess amount, but it would need to come from funds that are not included in your bankruptcy estate, such as a gift from a relative.
Chapter 13 bankruptcy might be an option for you if you have substantial equity in your home or vehicle and want to save them. In a Chapter 13 bankruptcy, you can keep your property. However, you will enter into a repayment plan for a duration of three to five years, during which you will repay a portion of the debts that you owe.
