How Can Bankruptcy Help Me With My Mortgage
In bankruptcy, a debtor, or obligor on a mortgage note, will surrender his or her interest in the property. This means the person vacates or willingly gives up the property to the holder of the mortgage to enforce their lien against the property. As a debtor in bankruptcy, a persons financial obligation to pay the note is discharged and the mortgage holder can no longer collect or pursue that individual for payment. The mortgage holder can then exercise their right to the property, usually via a foreclosure sale. Here is where it gets a little tricky!
Although, you have discharged your financial obligation to the property, until the mortgage holder exercises their right to take ownership, the legal title remains in your name. The hope is that your mortgage holder will act quickly to foreclose on the property once you file a bankruptcy and make the decision to surrender your real estate.
Unfortunately, if they dont, there is no avenue to force them to do so. That is why we advise all of our clients who choose to surrender real estate that they must keep the property upper any municipal codes until a foreclosure sale takes place and a new deed is filed in the appropriate probate court.
Statement Of Financial Affairs And The Means Test
Statement of Financial Affairs, Official Form 107, and other forms, like the “Means Test” aren’t schedules, but they’re integral to filing for bankruptcy relief all the same. The Statement of Financial Affairs is a list of questions that cover your financial dealings over the period the last two years, including whether you’ve transferred any property, suffered losses, hold any bank accounts or safe deposit boxes, your marital status, and any lawsuits you’ve been engaged in.
The “Means Test” is a calculation that compares your income and expenses to others in your state based on family size. It determines if you qualify for a Chapter 7 “straight” bankruptcy where your debts will be discharged, or if you have sufficient disposable income to file a Chapter 13 bankruptcy petition instead and pay your debts over time.
Your local bankruptcy court might have additional forms for you to file.
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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Do I Ever Get My Assets Back
Assets that are part of the bankruptcy estate may be removed from the estate by claiming protections called exemptions. Exemptions are legal protections that shield certain assets from your creditors, up to certain maximum dollar amounts. Common examples of exemptions include protections for a homestead, a vehicle, your clothing, household goods and wages, up to certain amounts. As part of your bankruptcy paperwork, you should claim these protections for your assets. If you have assets that could be protected by an exemption and you fail to claim that exemption, those assets become part of the bankruptcy estate.
If your creditors or the bankruptcy trustee disagree with the exemptions you have claimed, they may object to your exemptions. However, if no one objects to your claimed exemptions within 30 days after your bankruptcy hearing, then the exemptions are allowed, even if your exemptions are not actually valid. Once the exemption is allowed, the exempt property is removed from the estate and is legally yours again.
Also, assets that are part of the bankruptcy estate may be abandoned by the bankruptcy trustee if the trustee determines that the assets have minimal value or are burdensome to the estate. Any assets that the trustee does not administer are considered abandoned back to you at the closing of the bankruptcy case.
Losing Your Home In Bankruptcy V Losing Your Home In Foreclosure
You’ll want to be able to distinguish between losing your home in bankruptcy and losing your home outside of bankruptcy . These are two separate processes.
If you’re behind on your mortgage payments, you’ll eventually lose your home in foreclosure outside of bankruptcy, even if the bankruptcy trustee doesn’t sell your home.
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What Is The Benefit Of The Caution
The caution prevents the bankrupt from transferring or mortgaging the property since any subsequent transfer or charge is subject to the caution. At the same time the trustee is not registered as the owner which means the trustee does not take on any of the liabilities associated with being an owner.
Even after the caution is registered the trustee can be registered as the owner of the property. The trustee can market the property and enter into a transaction. When it comes time to close the transaction and transfer title the trustee can be registered as the owner and can then transfer title to the new purchaser.
Wojtek Jaskiewicz is a commercial litigator and insolvency lawyer with WeirFoulds LLP. If you have any questions about the bankruptcy caution, dealing with the real estate of a bankrupt, or insolvency in general, contact Wojtek Jaskiewicz at or visit our website at www.WeirFoulds.com.
How To Overbid At A Bankruptcy Sale
While the bankruptcy trustee is the seller, the trustee acts only under court authority through an order approving a motion to sell the property under Section 363 of the Bankruptcy Code. To ensure that the sale is fair to creditors, the sale motion will generally provide the procedures to overbid. An overbidder is a potential buyer of bankruptcy property who requests to pay more than the proposed buyer identified by the bankruptcy trustee in the sale motion.
Always review the sale motion filed by the trustee to understand the procedures for overbidding at the hearing. The sale notice will provide instructions on any pre-qualification, which may involve providing the trustee with a cashiers check to the deposited with escrow if that overbidder is the highest bidder and agreeing to execute a purchase and sale agreement similar to that of the stalking horse buyer. The cashiers check would be refunded if the overbidder does not ultimately prevail in the bidding process.
The sale motion will provide the date, time and location of the hearing, as well as the minimum overbid and bidding increments . For example, if the proposed buyer offered $500,000, and the minimum overbid is $10,000 more, with bidding increments of $5,000, the first overbidder would need to offer $510,000, with the next bid required to be at least $515,000. Generally, the court will allow agents, such as a real estate agent or attorney for the bidder, to bid on behalf of an overbidder.
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Joint Property In Common Law Property States
If you’re filing a joint bankruptcy with your spouse in a common-law state, both spouses’ separate and joint property will be included in the bankruptcy estate. If you file alone, only your separate property and your portion of any joint propertyâtypically halfâis part of your bankruptcy estate. Learn more in What Happens to Joint Property in Bankruptcy?
Free And Clear Of All Liens
Some buyers wonder whether a bankruptcy sale wipes out junior liens similar to a foreclosure sale. The issue of junior liens is essentially irrelevant, as the bankruptcy trustee is selling the property, not the position of a particular lien holder.
The term free and clear comes from Bankruptcy Code Section 363, which allows the sale of an encumbered asset whereby the liens on the property are extinguished as to the property, but attach to the proceeds of the sale.
The sale should be consummated through escrow wherein the buyer and trustee will obtain title insurance so that there will not be any issues as to any liens remaining after the sale. Absent something unusual, which would likely be stated in a sale motion or a title insurance preliminary report, whatever would happen in a normal sale on the open market can happen in a bankruptcy sale.
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Contact A Bankruptcy Attorney For Mortgage Help Today
If you have ANY financial burdens that you are struggling with, we can help you. Whether it is a real estate obligation, credit cards, medical bills, or anything you are struggling with financially, please come it to see one of our attorneys for a free consultation to discuss how we can help you with this burden.
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When Is It Not Ok To Sell Your Property
The transfers which will be of interest to the trustee are those which took place within the two years prior to filing your bankruptcy, or the time allowed to set aside for fraud, whichever is longer. There are two types of fraud.
First, there is actual fraud, which means that the transfer took place with the intent to defraud, delay or hinder creditors. This means that you sold or gave away property so that it would not be in your name at the time you filed your case, in hopes that the trustee would not have access to it.
There is also something called âconstructive fraudâ which means that the circumstances show that, for all intents and purposes, there was fraud. This is found when property is transferred for less than what it was worth and at the time you were insolvent . Insolvency is presumed if the transfer took place 90 days prior to filing . As an example, if you were to sell something for less than âFair Market Value â within 90 days prior to filing your bankruptcy case, that can be considered a fraudulent transfer which a trustee could void.
Beware Of Looming Foreclosures
Almost all properties in bankruptcy have a mortgage against them. Most times those mortgages are underwater and the banks stand to lose a considerable amount of money when the property sells. When the trustee accepts your offer, they will notify all of the lienholders on the home of the proposed sale. This gives lenders a chance to object to the sale to protect their asset from being sold for less than they would like.
Banks will make their own analysis of the fair market value of the home and what they are owed. They use this data to figure out what their likely proceeds will be if the home gets foreclosed versus being sold by the bankruptcy court. If the bankruptcy offer is too low, they will object and proceed with foreclosure instead. Remember that the bankruptcy court is trusted with protecting creditors, not getting you a great deal on the house, so the potential that the home you are bidding on will be foreclosed is quite high.
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Bankruptcy And Joint Home With Ex
Its not uncommon for a separated couple to still own a home together pending formal distribution of the marital assets. If you file bankruptcy during your divorce, but before any divorce or separation agreement is finalized, any assets you own at the time you file are subject to seizure in your bankruptcy including your share of the house even though you are no longer living there. Should you file for bankruptcy, your ex-spouse who currently resides in the home might be affected.
Like my previous example, the impact of bankruptcy on a joint home will all come down to how much equity is available.
If, pending completion of your divorce your ex-spouse lives in the home, your ex-spouse can work with your Trustee to buy out the equity, putting funds in your bankruptcy equivalent to the equity for the benefit your creditors, in exchange for a deed giving them full title to the property.
If the marital home is being sold as part of the divorce, the Trustee may register a lien on the property for the amount equal to the bankrupts share of the equity until a sale is completed. The lien will result in any sales proceeds being paid to the trustee ahead of the spouse, but after repayment of the mortgage.
How To Deal With Occupants At The Property
If you really want to sweeten the deal to get a great price, offer to take the property in its current condition, which may even mean accepting any occupants at the property.
However, you can ask for a court order stating that there are no long-term leases in place at the property since such leases could hinder your ability to obtain an unlawful detainer against those tenants in state court after the hearing. Even further, a buyer may want to ask for a court order that there are no lawful tenants at the property such that the buyer could change the locks after the sale is closed. With such an order, a buyer could even obtain a further order that the United States Marshall Service turnover possession to the buyer, thereby avoiding an unlawful detainer in state court.
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Bankruptcy Court: Complete Bankruptcy Schedules Truthfully
If youre thinking about ways to get around the system, youre not alone. Most people want to keep both exempt and nonexempt assets, and might even entertain doing so. Dont do it.
Simply put, the bankruptcy court is not the place to skirt the rules. Trying to obtain property youre not entitled to in bankruptcywhether it be by hiding it, omitting it, or through any other meansconstitutes fraud and can result in a fine up to $250,000, imprisonment for up to 20 years, or both.
Its also not a good idea to assume that you wont get caught. The bankruptcy trustee will look through your bank statements and the other financial documents youll be required to turn over. Plus, theres an incentive to comb carefully through your schedules. The trustee gets a percentage of any money found for your unsecured creditors .
If something appears amiss, property records can be investigated, and inspections of your home, business, storage space, and safe deposit box ordered. If you bend the exemption rules, you can expect the trustee to file an objection and force you to prove that youre entitled to the exemption in a hearing before the judge.
If You Own A Home Floridas Homestead Exemption Is Generous
This Florida bankruptcy exemption covers real property such as family homes, co-ops, mobile homes, burial plots, etc. Floridaâs homestead exemption is important because it lets you keep your house.
Other states usually limit how much equity you can have in the house. So, you can only protect up to a certain value. Not so in Florida. As long as you meet the requirements below, you can protect your home using Florida’s homestead exemption no matter how much it’s worth.
You can use the Florida bankruptcy exemption for homestead if :
You’ve owned the property for the last 1,215 days prior to filing or longer.
Property size canât exceed Â½ an acre – or – 160 acres .
Couples: This exemption can be doubled for spouses that are filing together.
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The Look Back Period For A Fraudulent Transfer
How long can a trustee look back in time to find a fraudulent conveyance?
Under the Bankruptcy Code, the look back period is two years however, the trustee may use state law if the allowed look back period is longer. Many states, including Florida and Massachusetts, have adopted the Uniform Fraudulent Transfer Act , which allows creditors to look back four years to find a fraudulent conveyance. Some states implement an older version of UFTA called the Uniform Fraudulent Conveyances Act .
In any case, if your state is a UFTA state, the trustee will then have a four-year period to try to unwind transfers that appear fraudulent. Note that some states will have longer look back periods. In New York, Minnesota, Michigan, and Maine, the look back period is six years. In Kentucky and Iowa, its five years.
Bankruptcy Sales Allow Buyer Protections Like Escrow And Inspections
Many buyers are wary of buying at a foreclosure auction where title is taken as-is with no refunds if the property is not as expected. Indeed, a foreclosure trustee accepts the money directly from the buyer in cash or money orders, then records the deed.
However, a bankruptcy trustee generally opens an escrow in which the trustee deposits a deed, and the buyer deposits the necessary funds and releases contingencies. Buyers are welcome to negotiate the terms of a purchase, including inspection of the property and ordinary time to review title insurance to see that all issues are resolved. If something goes wrong, the buyer can back out, often times with the trustee retaining the earnest money deposit.
Buyers should not be afraid to add protections in their offer to make sure they get what they expect.
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