How Do I Save My Home In Bankruptcy
Our home is our most important asset of all that we own. It represents everything from our personal taste to our financial and economical position as well as is deeply entwined with our sentiments and emotions. So by all means, securing our home is always a priority for us. When you are considering filing for bankruptcy, the security of your home is one of the vital doubts that are bound to come in your mind. Losing your house in any ways- be it through foreclosure or selling it to pay your creditors through a trustee, is not desirable. So what can you do to save your house? Do keep in mind that while you may be able to keep your house in some way or the other, whether you can maintain it in the long run is actually the factor to be considered.
Can I keep my house if I file for Chapter 7 Bankruptcy ?
If your houses equity is exempt and you can afford the necessary payments then you can keep your house. However if there is some amount of non exempt equity in your home, keep chapter 13 bankruptcy in consideration as well. It is less than likely that you have some nonexempt equity on your house and the trustee is not going to attempt to sell off your house to pay the creditors.
Saving your house and the automatic stay :
Consider chapter 13 instead of Chapter 7 Bankruptcy :
Some other ways where you can save your home during bankruptcy :
Trustee Fees & Unsecured Creditors
To successfully sell a property in bankruptcy, the trustee needs to collect their fee. Oftentimes the court also wants to see some money being paid to unsecured creditors as well. There is a complex dance that plays out differently on every single property to come to the right deal that the lenders will approve and that the court will also approve. If there is equity in the home, some of these excess fees may come from that, but beware that the buyer may be asked to pay some of these fees to make the deal work.
In What Circumstances Will The Home Be Sold
The home is not always sold. Whether or not the home is sold depends on your individual circumstances. The trustee will consider factors such as:
- if there is equity in the home
- whether there are any debts over the home for example, a mortgage
- whether the home has been purchased with protected money
- who owns the home
- who becomes bankrupt: the sole owner, one of the two co-owners or both co-owners .
Federal Bankruptcy Homestead Exemptions
Lets now review the federal bankruptcy homestead exemptions.
The protections offered by state and federal bankruptcy exemptions differ. For example, the homestead exemption for Florida is unlimited in most cases, meaning your home may be protected no matter the amount of equity. However, the current exemption for a home under the federal exemptions is $25,150 . Couples who file a joint bankruptcy exemption and are both on the title to the home may double the federal homestead exemption to protect up to $50,300 of equity in their home. The federal bankruptcy exemptions are subject to review and adjustment every three years. The next scheduled review for adjustment is on April 1, 2022.
So, which states allow you to choose federal bankruptcy homestead exemptions. See the list below.
But, how can bankruptcy exemptions help me with bankruptcy and keep my house? Lets continue how you can keep your home and car when filing bankruptcy.
If Youre Behind On Your Mortgage Payments
With Chapter 7, if you are behind on your mortgage payments and cant catch up, you can surrender your house. If you want to catch up on payments, there is no provision under Chapter 7 to do that, so, as mentioned before, it should be done before filing for bankruptcy.
One of the biggest benefits of Chapter 13 is that it makes it easier to keep your house, including catching up on payments. Payment plans allow a mortgage modification with a bank that can spread missed payments over the life of the plan, three to five years, and also require current payments be made.
In either case, if the bank is going to foreclose on your house and you know you wont be able to stop it, and you plan to file for bankruptcy, file for bankruptcy before the foreclosure. If the bank sells your house after a foreclosure but doesnt make back what you owe them on it, there is a deficiency judgment, which means you owe the bank the difference. If the foreclosure happens as a result of the bankruptcy, there is no deficiency judgment.
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Can I Keep My House If I File Chapter 13
If you have sufficient income to keep up with your mortgage, you will not lose your house. Chapter 13 bankruptcy involves a 3 – 5 year repayment plan. Long-term secured debts, like home mortgages, remain in place. Just like after a Chapter 7 filing, youâll continue to make your regular monthly mortgage payments after filing. In other wordsâ¦
If youâre current with your mortgage payments â¡ï¸ everything will stay basically the same.
Different Types Of Bankruptcies
There are several different types of bankruptcies, but the majority of individuals can only file for Chapter 7, which is also known as liquidation bankruptcy, and Chapter 13 bankruptcy, which is also known as the wage earners plan.
Chapter 7 bankruptcy can help you wipe some or all your debts in a few months. However, you may have to surrender your assets like cash, property, etc. It stays on your credit reports for ten years.
Whereas with Chapter 13 bankruptcy, some of your debts will get discharged, but you can keep your property and repay the debt through a three to five year repayment plan approved by the bankruptcy court, says Hoorfar. It will stay on your credit report for seven years.
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Do You Owe Money On Your House Or Your Car
Home mortgage loans and car loans are secured debts, which means they are debts secured by collateral. When you borrowed the money, you pledged the property as security for the loan. If you do not pay the debt, the creditor can take the property.
If you file a Chapter 7 case and owe money on your house or car, you can keep the house or car if you agree to repay the underlying loans, and:
- The monthly payment is reasonable
- The property is necessary to support yourself and your dependents
- You are current on the payments and
- You can afford the payments and still support yourself and your family.
If you are behind on your house or car and file Chapter 7, you can use the bankruptcy as a chance to walk away from the debt and start over, which may be the best choice for someone who cannot afford to pay back such loans. Chapter 13 is also an option to save your house or your car if you are behind on payments contact Jenkins & Clayman to find out more.
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.
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Check If You Can Stop Or Delay The Official Receiver Selling Your Home
You might be able to stop or delay your home from being sold if:
- someone else has a legal right about your home
- someone will buy your share of the home
- your mortgage covers most or all of what your home is worth – called low or negative equity
If someone else has a legal right about your home
The official receiver will usually only sell your home after youve been bankrupt for a year. This is because someone with a legal right about your home has more rights to keep it for a year after you go bankrupt.
If you need to keep your home for more than a year, youll need to show there are exceptional circumstances which mean you cant move earlier. For example, you might not be able to move earlier if someone you live with:
- is at school and needs to keep the support they get from school
- has a mental health problem
- is disabled, and the house has been adapted for their needs
- is over 70 years old
If you need to keep your home for more than a year, talk to an adviser to find out whether your circumstances are exceptional.
If someone will buy your share
You might be able to stop your home from being sold if someone agrees to buy your share of it.
It’s important to remember that you can’t just sign over your share of your home to someone else to avoid it being sold. If you want to sell your share, you need to do it at market value.
If your home is in low or negative equity
Chapter 13 Imposes A Payment Plan On Lender
Chapter 13 is built to allow the homeowener to cure defaults on long term debts like mortgages.
Gone is the ability of the lender to refuse to take catch-up payments or to insist on cure in a single payment.
This is federal law, and the homeowner is at the helm of this ship.
The homeowner in Chapter 13 proposes a plan for payments to the Chapter 13 trustee. The court approves the plan. The trustee pays creditors according to the plan. The usual distribution scheme pays secured claims, like home loans, first.
So, your plan can provide that you pay the trustee a monthly payment that catches up on that default. Chapter 13 plans last a minimum of three years and a maximum of five years.
Your plan will need to provide that you make the on going payments on the mortgage as well. Each district has its own protocol as to whether you write the check to the mortgage lender for ongoing payments or whether you pay the trustee, who pays the lender.
Once your plan is confirmed, the lender is required to accept the payments. Absent some post filing breach on your part, the lender is unlikely to have any way to push back against the payment plan.
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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.
Check Your Credit Report
Lenders look at your credit reporta detailed report of your credit historyto determine your creditworthiness. Although bankruptcy filings can remain on your credit report for up to 10 years, it doesnt mean you have to wait 10 years to get a mortgage.
You can speed up the process by making sure your credit report is accurate and up to date. Its free to check: Every year, you are entitled to one free credit report from each of the big three Equifax, Experian, and TransUnion.
A good strategy is to stagger your requests, so you get a credit report every four months . That way you can monitor your credit report throughout the year. One of the best credit monitoring services could also be useful in this endeavor.
On your credit report, be sure to watch for debts that have already been repaid or discharged. By law a creditor cannot report any debt discharged in bankruptcy as being currently owed, late, outstanding, having a balance due, or converted as some new type of debt . If something like this appears on your credit report, contact the credit agency right away to dispute the mistake and have it corrected.
Other mistakes to look for:
- Information that is not yours due to similar names/addresses or mistaken Social Security numbers
- Incorrect account information due to identity theft
- Information from a former spouse
- Outdated information
- Wrong notations for closed accounts
- Accounts not included in your bankruptcy filing listed as part of it
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You Can Make The Payments
The bankruptcy discharge eliminates your personal liability for the mortgage, but it does not alter the lien that secures the mortgage.
Thus, after bankruptcy, the mortgage lender still has its rights in the property, including the right to foreclose if you dont make payments or otherwise breach the loan agreement.
So, make the payments, keep the house.
Almost without exception, the secured creditor wants you to keep the house and keep paying on the loan. The lender is not looking for an excuse to foreclose. These days, even lenders who are legally entitled to foreclose seem to be in no hurry.
If you are behind on your payments and it makes sense to keep the house, consider Chapter 13.
Using Chapter 13 Bankruptcy To Remove Junior Liens
If you have a second or another junior lien on your homestead, you might be able to get rid of it through a process called “lien stripping.” Lien stripping is available only in a Chapter 13 case and only when your property is worth less than the primary loan balance.
To strip the lien, you’ll have to file a motion in the bankruptcy court and present evidence on the property’s value and the mortgage loan balances. If the court voids the junior lien, the debt you owe to that creditor will be treated in the Chapter 13 case as if it were unsecured. Any remaining balance will get wiped out with other qualifying unsecured debt at the end of the case.
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What If My Home Has Dual Ownership
If you co-own a property with someone, the trustee in bankruptcy will only be entitled to the bankrupt individuals share of the equity in the property. This could mean that the house is forcibly sold, or the co-owner of the property could buy the bankrupt share.
You can sell and share the sale proceeds as per the terms set down in their joint ownership agreement, or they can buy the share of the bankrupt owner and pay the trustee.
You Need To Have No More Than $500k In Equity
You can keep your house in a bankruptcy when you have no more than $500,000 in equity in your home. There are several exemptions provided by both Rhode Island law and Federal law, and the Rhode Island Homestead exemption allows a homeowner to retain the house even after filing for bankruptcy. The specifics of your case will determine which exemption is the best for you.
Regardless of which exemption you choose, theres a provision for protecting the equity you have in the house. Equity is the difference between what you owe on your house and what its worth. For example, if you owe $280,000 and your house is worth $315,000, the equity in your house is $35,000. Most people dont have any where near $500,000 in equity in their home. If you do there are other options discussed further on.
As a general rule, you qualify for the Rhode Island homestead exemption and keep your house you must have $500,000 or less equity in your home.
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Gifts Transfers Of Property Or Special Treatment
Any gifts or transfers of property youve made in the year prior to filing for bankruptcy will need to be reviewed by your LITand could be reversed by the court. You will also need to advise your LIT of any payments or preferential treatment to your creditors in the three months prior to declaring bankruptcy .
For more information about bankruptcy exemptions, you can click the button below to book a free initial consultation with a Licensed Insolvency Trustee.