In Many Cases You Can Keep Your Home In Chapter 7 Bankruptcy Learn More Here
By Cara O’Neill, Attorney
You won’t necessarily lose your home in Chapter 7 bankruptcyespecially if you don’t have much home equity and your mortgage is current. Whether you can keep your home after filing for Chapter 7 bankruptcy will depend on the following factors:
- whether your mortgage is current
- if you’ll be able to continue making the payments after bankruptcy
- how much equity you can protect with a homestead exemption, and
- the amount of equity in your home.
If you’re behind on your payment, in foreclosure, or have more equity than you can protect, you’ll have a better chance of keeping your home in Chapter 13 bankruptcy. Filers faced with those circumstances should learn more about choosing between Chapter 7 or Chapter 13 when keeping a home.
For step-by-step guidance through the bankruptcy process, read What You Need to Know to File for Bankruptcy in 2021.
What Debts Cannot Be Discharged In Bankruptcy
The following debts cannot be discharged in either a Chapter 7 or a Chapter 13 bankruptcy case. If you file Chapter 7, you will still owe these debts after your case is over. If you file Chapter 13, these debts will either be paid in full during your plan, or the balance will remain at the end of your case.
Nondischargeable debts include:
- Unlisted debts, unless the creditor had knowledge of your bankruptcy filing.
- Recent income tax debt and other tax debt.
- Fines imposed for violating the law.
- Student loans, unless you can show that it will cause a hardship for you to repay them.
- Debts you owe under a divorce decree or settlement.
In a Chapter 7 and 13 case, a creditor may object, and a judge may agree, to theseadditional debts being discharged:
- Debts incurred by embezzlement, fraud, or larceny.
- Certain credit purchases made within 90 days or cash advances made within 70 days of filing.
- Restitution or damages awarded in a civil action for willful or malicious injury to a person.
If Your Home Is In Negative Equity
If your home is in negative equity, then you may be able to keep it. It won’t be sold unless the value of your share is more than £1000, after any sale costs have been taken off.
At two years and three months after the bankruptcy order is made, the situation will be reviewed. If your interest in the property is still valued at less than £1000, it’s unlikely the home will be sold and it will transfer back to you.
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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.
Newfoundland & Labrador Bankruptcy Exemptions
In Newfoundland and Labrador, property exempt from seizure in bankruptcy is set by the provincial government and applies to the equity in an asset. Equity is the difference between the value of the asset and what you owe on the asset.
Example: If you have a car worth $6,000 and you still owe $4,000 on the loan, the equity you have in the car is $2,000. In Newfoundland and Labrador, the exemption for a car is $2,000. In this case, you would be entitled to keep the car and your unsecured creditors cannot take this from you when you file for bankruptcy.
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What Is Exempt From Bankruptcy In Ontario
Generally, bankruptcy falls under federal law.
This means that many of the rules and regulations surrounding it are the same across the country.
However, each state has its own bankruptcy exemptions.
In Ontario, these exemptions are outlined in the Ontario Execution Act.
The current laws have been in place since 2015 and state that the following exemptions are allowed:
- All clothing that you own, provided it is essential
- Household furnishings and appliances This only applies to furniture or household appliances that have a total value of up to $13,150. If the value exceeds this, any additional items will be sold or claimed by creditors
- One motor vehicle This can be a car, truck, motorbike, etc. The ruling for this is that your vehicle must be worth less than $6,600. If it is worth more, you either sell the car or pay the difference in value to keep it. E.g. your car is worth $10,000, so youd have to pay $3,400. Those of you with loans or leases attached to your car will have the value of these things taken away from the total value of the car. This determines the net value
- Trade tools You can keep any equipment that you use to make a living, provided the net value is under $11,300
- Some types of life insurance policies
- Retirement accounts This includes RRSP, RRIF, and SPSP savings. However, it doesnt include any contributions made in the last 12 months.
If I File Bankruptcy What Happens To My House
That may depend on which chapter you use.
- Chapter 7: This will be more helpful if youve kept up with your mortgage payments but havent developed equity up to the exemption amount. If youre in financial trouble, but you focused on paying for your home while other debts and obligations piled up, this may be a good option. You must also be able to continue to make mortgage payments in the future.
- Chapter 13: If youre not current on your mortgage payments but want to keep your home, Chapter 13 may help you catch up. Youd need to keep up with your mortgage debt and your repayment plan. For many bankruptcy debtors, most of their obligations are considered nonpriority unsecured debt . When theyre discharged, its easier to pay your mortgage. Some of those debts include credit card debt, medical debt, utility bills, and most lawsuit judgments against you. If you cant make your payments, your case will convert to Chapter 7, and youll lose your home equity beyond the exemption amount
Chapter 7 may be the better option if youre a good fit. Many homeowners try to keep their house through Chapter 13, but often the payments are too much for them to handle. If youre disciplined and face no other financial problems during the plans payment period , you may be able to make it through and keep your house.
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Your Car In Chapter 13 Bankruptcy
Readers who filed for Chapter 13 bankruptcy were also very likely to keep their cars. If youre behind on your vehicle loan, you can use a Chapter 13 plan to catch up with your overdue payments , but you also have a couple of other options that dont apply to house loans. In Chapter 13, you might be able to stretch out the car payments over a longer period. Or, if the car loan is old enough, you might even be able to lower the balance on the principal and your interest rate.
I wish wed known that it would hurt us to sell a car before entering bankruptcy.
Sally, 48, Illinois
Whats The Process Of Filing Bankruptcy
Filing a Chapter 7 bankruptcy is more straightforward than Chapter 13, and it can take four to six months to complete the whole process. Youll go through mandatory credit counseling and budget counseling, attend a creditors meeting, and wait for the courts written discharge of your debts.
Lets dive into a few questions that you probably have about your house:
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Can You File Bankruptcy And Keep Your House In 2021
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In a Nutshell
Filing bankruptcy and keeping your house is possible. Whether you can file bankruptcy and keep your house depends on your unique circumstances. Hereâs what you need to know.
Written by Attorney Andrea Wimmer.
Homeownership has long been part of the âAmerican Dream.â If youâre overwhelmed with debt, donât let your fear about losing your home stop you from getting bankruptcy relief. Especially if paying your creditors is putting your ability to pay your home mortgage at risk.
What Happens If You Own A House And File For Chapter 7 Bankruptcy
Updated by Cara O’Neill, Attorney
Whether Chapter 7 bankruptcy makes sense when you own a home depends on your goalsdo you want to save your house, delay foreclosure, or just walk away with less debt?
Most Chapter 7 bankruptcy filers can keep a home if they’re current on their mortgage payments and they don’t have much equity. However, it’s likely that a debtor will lose the home in a Chapter 7 bankruptcy if there’s significant equity that the trustee can use to pay creditors. For those planning to walk away, filing can delay foreclosure for a short period.
You’ll find a complete overview of the bankruptcy process in What You Need to Know to File for Bankruptcy in 2021.
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Keeping Your Home In Chapter 13 Bankruptcy
The good news about filing for Chapter 13 bankruptcy is that its designed to allow you to keep your house. With Chapter 13, you, the bank and your creditors all decide on a repayment plan that takes three to five years, but your assets are not sold off. Once the plan is completed, your unsecured debt is discharged. The trick, of course, is making it to the end.
The plan that is worked out with the court and your creditors will include a way to catch up on and pay your mortgage if you can afford it.
Under a Chapter 13 repayment plan, if youre behind on your mortgage the plan will work out how you pay the past due payments over the three to five years, but you also must make the current monthly payments.
What Happens To My House After Filing Bankruptcy
The following article addresses the commonly asked question: what will happen to my house after filing bankruptcy? We all dream of home ownership. But what happens when the Canadian dream of owning your own home does not work out as well as expected?
It costs a lot of money to own a home. You have mortgage payments and property taxes. Your gas and electricity bill will be higher than when you lived in an apartment, because your house is bigger.
Heres a typical scenario. Of course, everyone wants furniture for their bigger house, and that costs money. Unfortunately, many Canadians buy a new home and then go to a furniture store that offers a buy now, pay later deal. It sounds great: you get your furniture today, and you dont have to pay for it for a year. Its fine until next year comes, and now youre faced with a huge bill for furniture that you cant afford.
If, when the furniture bill comes in, you have also lost your job, or perhaps had your hours cut at work, you now have a problem.
For many people the only solution may be a personal bankruptcy.
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How Your Equity Affects You In Bankruptcy
The market value of your house, minus what you owe on it, is home equity. Lets say the market value of your home is $250,000. You owe $195,000 to the bank on it. That means you have $55,000 in equity. In other words, if you sold your house tomorrow, after you paid what you owe, youd clear $55,000. The debt on your house not only includes the mortgage, but any home equity loans or lines of credit you may have, as well as liens.
The homestead exemption protects equity, up to a point. With the example above, if your state had a $50,000 exemption, then the bankruptcy court would only consider what came after that as equity $5,000. This is a simplification for explanation purposes fees for the bank and trustee are also subtracted, so it would, in reality, be less. If you were using the federal exemption, the exemption would be $29,850 in equity, minus the fees. If you live in a state that only allows you to use the state exemption, and the state exemption is lower, say $10,000, the court would consider $45,000 in equity, minus the fees.
As youll see shortly, while Chapter 13 is designed to help you keep your house, its difficult to do. The courts recommend people filing Chapter 13 bankruptcy hire an attorney or financial counselor who is an expert in bankruptcy to help you navigate the ins and outs.
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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Lottery Winnings Or Inheritances
If you win the lottery or receive an inheritance after youve filed, but before youve been discharged from bankruptcy, that money must be given to the LIT, who will distribute it to your creditors. If the amount youve received is greater than the debts you owed, you can keep whats left after your creditors have been paid off.
The Right Bankruptcy Lawyer May Be The Difference
If you have equity in a home you want to keep, but paying all your bills has become impossible, bankruptcy lawyer Jerry E. Smith will treat you with respect, discuss how the law may apply, answer your questions, and suggest your best options. Call us at 917-8680 for a free one-hour consultation today. Weekend and evening appointments are available.
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What Doesnt Bankruptcy Do
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
- Eliminate certain rights of secured creditors. A secured creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt
- Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, some student loans, court restitution orders, criminal fines, and some taxes.
- Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan. Discharge debts that arise after bankruptcy has been filed.
Rehousing If You’re Homeless Because Of Bankruptcy
If you risk being made homeless because of bankruptcy or it’s already happened to you, you should contact your local authority as soon as possible. They will consider your circumstances to see if you’re eligible for help with re-housing.
If you’ve sold your home in a bid to avoid going bankrupt, the local authority may not help you with alternative housing, as it may decide you’re intentionally homeless. However, you should speak to your local authority at as early a stage as possible if this is likely to apply to you.
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Can You Afford To Keep Your Home
The first question to ask yourself is: do I want to keep my house? If your house is worth less than what is owing on the mortgage, or if you cannot keep up with the mortgage payments and other house expenses, it may be prudent to surrender your house and go bankrupt. The resulting shortfall would be included in the bankruptcy.
The next consideration is whether or not your mortgage is current. If you are behind on your mortgage payments that is a strong indication that you are not able to afford the house, and it is more likely that the lender will want to foreclose on your house if you go bankrupt.
In addition to your mortgage payments being current, it is important that property taxes and utility payments are also up to date, as arrears in property taxes and utilities can be added to the mortgage, which may cause the lender to foreclose on your house.
You must next ask yourself whether or not you truly can afford your house. Many people look only at the mortgage payment and say Im better off paying $1,000 per month in mortgage payments than paying $1,000 per month to rent. Unfortunately its not just the mortgage payments that matter you also must pay property taxes, utilities, condo fees, and maintenance costs on your home, which may mean you are actually paying closer to $1,500 or even $2,000 per month for your home. In that case it may be cheaper to rent. .
