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.
The Problem With Filing Multiple Bankruptcies
People have taken advantage of the automatic stay in the past by using it to prevent the lender from completing a foreclosure over and over again. The legislature tightened bankruptcy laws so that the automatic stay isn’t quite as automatic for borrowers who’ve had more than one case pending in a year’s time. Here’s how the current system works:
- If you file a new bankruptcy case less than a year after a prior case, the automatic stay remains in place only 30 days unless the court agrees to extend it.
- If you file a new bankruptcy case when you’ve had two prior cases pending during the previous year, the automatic stay doesn’t go into effect unless the court agrees to impose it.
Options For Keeping Your Home Or Car After Chapter 7 Bankruptcy
If youre filing for Chapter 7 bankruptcy, you may want to keep your car or your home. Luckily, youve got a few options.
When you file for Chapter 7 bankruptcy protection youre looking to wipe out debts and keep as much of your property as possible. For you, that may include a home or car.
Youve got a few things to consider, and some options to help accomplish your goals.
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Find Out What Will Happen To Your Home If You File For Bankruptcy
In difficult times when few people have home equity, it’s rare to lose a house after filing for bankruptcy. But as the market heats up, and home values rise, the risk that your home will get sold for the benefit of creditors, or that you won’t be able to afford to keep it, increases. Two important factors to consider, that could determine the likelihood of you keeping your home, are if you can make your mortgage payments and if you can protect your home equity in bankruptcy. In this article, you’ll learn how a bankruptcy filingand timingcan affect what is probably your most valuable asset.
Will I Lose My House If I File For Bankruptcy
This depends on several factors, and is best answered by a Licensed Insolvency Trustee. In most provinces, your home is one of the assets subject to liquidation in a bankruptcy. However, certain provinces exempt some or all of the value of a principal residence.
If your home is mortgaged, only the equity is subject to seizure. In the event you are able to retain your home, a Trustee can help you decide if keeping your home is the most prudent financial strategy.
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Buying Nonexempt Property From The Trustee
If your nonexempt property is worth too much for the trustee to let you keep it, you can offer to repurchase the asset by paying the nonexempt value. Usually, you can negotiate a lower amount that takes into account the fact that the trustee won’t have to incur additional storage and sale costs. You can use the income earned after your bankruptcy filing, or sell exempt property and use the proceeds to fund the purchase. Or, some filers pay for the property with a loan from a friend or family member.
Can I Keep My House
This is one of the biggest questions when it comes to filing bankruptcy. Generally speaking, you usually can save your home and still obtain debt relief under either Chapter 7 or 13. The trick is to determine which category best suits your situation. Brian G. Hiatt can assist you in making this determination, but here follows a brief, general discussion of the issues involved.
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How To Know If Your Home Is Exempt
Figuring out whether your home is exempt is a simple math problem if you owe more than the market value, its exempt. Be sure to check what the exemption rules in your state are, because thats part of the math. Less simply, the paperwork you fill out requires you to list what you owe, the exemption and your equity. You file the items you believe are exempt in Schedule C. This not only includes your house, but you also get an allowance for your car, and items like furnishings, things necessary to do your job, and more. Its always a good idea to get help from an expert in bankruptcy wholl guide you through this complicated procedure.
Consider The Type Of Bankruptcy You File
There are two types of bankruptcies to choose from: Chapter 7 and Chapter 13. There are many differences between the two, but the major difference has to do with the exemptions to which you are entitled.
The federal government assumes:
- Everyone must try to pay off their debt
- If someone has âexcessiveâ property they should sell it to pay off their debt
However, bankruptcy is designed to give you a fresh start, not to leave you impoverished. The federal and state governments often have exemptions. This means that if your property is worth less than a particular dollar amount, you can keep it.
In general, Chapter 7 exemptions are much lower, stricter, and offer less flexibility than Chapter 13 exemptions. So if you file a Chapter 13 bankruptcy, you are much more likely to keep your house than if you file a Chapter 7.
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Will You Lose Your House If You File For Bankruptcy
Its a common fear around filing for bankruptcy that it means youll lose your house. While its true that can happen, its by no means a foregone conclusion. Heres what you need to know about the impact of bankruptcy on your house.
Whether you can keep your house or not will depend on a number of factors: the type of bankruptcy you choose, if youre current on your mortgage, how much equity you have in your house and your states laws.
Keeping Your Payments Current
Under Canadian bankruptcy law a secured lender, like a mortgage holder, is not permitted to cancel their loan simply because you have declared bankruptcy. If you are up to date with your payments, you can continue to pay your mortgage, even while you are bankrupt.
However, if you are in arrears or , the mortgage holder is not required to allow you to continue with the mortgage. Even if you are not bankrupt, if you are in arrears the mortgage lender can start foreclosure proceedings and sell your house.
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Bankruptcy Exemptions In New Brunswick
- Furniture, household furnishings and appliances up to $5,000
- No limit on clothes for you and your family
- Enough food and fuel for you and your family for three months
- Tools used by you in the practice of your trade up to $6,500
- One motor vehicle up to $6,500, if needed for employment
- Dogs, cats, and other domestic animals belonging to you
- No limit on medical or health aids for you and your family
- Certain government pension plans are exempt from bankruptcy
How Can Chapter 13 Bankruptcy Save My House
A Chapter 13 case allows you to bring your mortgage current by spreading out the arrearages over a three- to five-year repayment plan. You’ll also pay your monthly house payment. By the end of the payment plan, your mortgage will be up to date.
But Chapter 13 bankruptcy can do more than just save houses. Past due payments on other secured debts, like car loans, can be handled in much the same way as mortgage arrearages, or you can put the entire car loan into the plan and stretch out the balance over a longer period, if necessary. For old loans, you might be able to reduce what you owe to the value of the vehicle and lower the interest rate, too.
Some additional benefits include:
- Depending on the amount of your family’s income and living expenses, you might pay your nonpriority, unsecured debtssuch as credit card balances, medical bills, and personal loanspennies on the dollar .
- You can pay your bankruptcy attorney’s fees through your plan, as well.
One aspect of this chapter that can cause some filers a problem is this: You must pay any recent income taxes or past due child support and alimony over the course of the plan. If you owe a significant amount and don’t have enough income to support the monthly payment, Chapter 13 bankruptcy might not be the right choice for you. You’ll likely want to meet with a knowledgeable bankruptcy attorney for more information.
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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.
What Happens To Your Property In Bankruptcy
Whether you can keep your property in bankruptcy depends on whether you file for Chapter 7 or Chapter 13 bankruptcy.
For the most part, you keep your property in Chapter 13 bankruptcy.
If you file under Chapter 7, you may have to give up some property . This mostly depends on whether your property is exempt. To learn more, be sure to check out our section on Bankruptcy Exemptions. If your property serves as collateral for a debt , there are other considerations.
Below you’ll find articles explaining what happens to your property in both Chapter 7 and Chapter 13 bankruptcy, and links to other sections with more in-depth articles.
Bankruptcy Exemptions In Nunavut:
- No limit on household furniture and appliances
- No limit on clothes for you and your family
- No limit on medical or dental aids
- Enough food and fuel for 12 months
- No limit on hunting tools or tools of the trade
- Up to $35,000 of equity in your home
- Certain pensions and life insurance policies
Ontario bankruptcy exemptions
You may be afraid that you will lose everything if you file for bankruptcy, but this is not the case in Ontario. Here are the provincial bankruptcy exemptions that allow you to keep certain assets and possessions.
Houses Cars And Property Encumbered By A Secured Loan
If you own a house, car, or expensive household furnishings, chances are you had to take out a loan to purchase them. Your lender typically has a security interest in the property . This security interest is not affected by bankruptcy in most cases. Since bankruptcy does not erase security interests, the bankruptcy trustee is only concerned with how much equity you have in the property.
Each state allows you to exempt a certain amount of equity in your personal property and your house. So whether a trustee will sell your property depends on the amount of equity you have in the property and your state’s exemption laws. If you have no equity in your house or personal property, you don’t have to worry about the trustee taking them. However, if you wish to keep them, you must continue making regular payments to your lender. Your lender may also require you to “reaffirm” your debt to keep the property after bankruptcy.
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What Happens To Your Mortgage When You File For Bankruptcy
A mortgage is a secured debt that means that if you pay, you keep the security on it, which is your house. If you dont pay, you lose it. Bankruptcy, of course, complicates that.
Under Chapter 7, if its determined you cant pay your mortgage, then the bank will foreclose. The house will no longer be yours, and youll have to move out. You dont make any more payments in most cases.
With Chapter 13, you continue to make monthly mortgage payments, and also make past due payments, keeping the mortgage alive. But its not easy more Chapter 13 cases were dismissed in 2020, which means finished without being completed, than were discharged. When a case is dismissed, its as though the person never filed. The majority of dismissed cases was because homeowners didnt or couldnt make their payments. Whatever the reason, the debts are still owed, which puts you right back where you were before filing.
Whether you can or cant stick with the payment plan, you are still responsible for paying your mortgage or you will lose your house.
How Much Is Your Car Worth
The value of your car is part of what determines whether you can keep it when filing Chapter 7 bankruptcy. It also helps determine your payment plan in Chapter 13. Value is not what the car was listed for when you bought it, or how much youve paid since. States have rules on how to determine a cars value. Most go by retail replacement value, though some states have other measures. Retail replacement value is often called ACV . Its determined by the year and make of the car, its mileage and its condition. Sources like Kelley Blue Book or Edmunds, which list values for cars, can be a good starting point.
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Can I Convert Nonexempt Property To Exempt Property And Keep It
It’s tempting to engage in a certain amount of exemption planning before filing for bankruptcy, including converting nonexempt property into exempt assets you can keep in a bankruptcy case. It’s possible to do if it is done in good faith and not with the intent to defraud creditors, but that might not be an easy threshold to meet.
Also, bankruptcy courts have reached inconsistent conclusions regarding how much exemption planning is proper, so it’s imperative to discuss your plans with a local bankruptcy attorney. In this article, you’ll learn more about converting nonexempt assets into exempt ones.
No One Loses All Of Their Property When Filing For Bankruptcy Find Out What You’ll Keep
By Cara O’Neill, Attorney
Don’t worryyou won’t lose everything in bankruptcy. But you might lose unnecessary luxury items, like your fishing boat or a flashy car, or have to pay to keep them. To prevent expensive surprises, you’ll want to learn:
- how exemption laws protect property
- what happens to items you can’t protect, and
- where to find your state’s exemption laws.
Once you’ve mastered this area, it’s a good idea to review some other things you should know about filing for bankruptcy. Or check out our quick ten-question bankruptcy quiz. It can help you spot potential bankruptcy issues fast.
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What About Lottery Winnings Inheritances And Other Windfalls
Inheritances received, or due to you, as a result of the death of someone during bankruptcy become an asset of the bankruptcy.
Lottery winnings and similar windfalls received during your bankruptcy also vest in the trustee for the benefit of your creditors.
Bonuses and commissions from employment would be considered income and not subject to seizure by the trustee however they will impact the calculation of surplus income.
Are Debts Affecting Your Ability To Keep Up With Your Mortgage
Ask yourself this question: If I could deal with all of my other debts, would paying my mortgage be easier? We help people answer that question every day.
Its your home, so you always pay your mortgage, but you are falling behind on your credit cards and other bills, and you worry that you may soon also fall behind on your mortgage payments. You worry that you may lose your home.
You can file bankruptcy even if there is equity in your home. If you owe more money to your creditors than the value of what you own you are considered insolvent. If you are insolvent you are eligible to file for bankruptcy or proposal in Canada.
With up-to-date mortgage payments filing for bankruptcy does not mean you will automatically lose your house. In fact, by eliminating other debts that are making it difficult to keep up with your mortgage payments.
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