Nine Things Homeowners Should Know About Bankruptcy
by Ted Ricasa on Jan 27, 2014
When people fall behind on their mortgages, often following a job loss or life-changing event, many turn to bankruptcy. For some, bankruptcy offers an escape from crushing debt or an opportunity to restructure and pay down debt. Before you file bankruptcy, there a number of things you need to understand.Knowledge is key during the decision making process, otherwise filing for bankruptcy could cause a number of unforeseen headaches.
9. Bankruptcy can halt the foreclosure process.
When faced with foreclosure and few options to turn to, many homeowners declare either Chapter 7 or Chapter 13 bankruptcy. When bankruptcy is declared, the foreclosure process stops and in most cases, a court orders an “automatic stay”. This buys time for homeowners to figure out their next move and potentially save their home or discharge their debt.
8. You will need to take the Means Test to see which type of bankruptcy you qualify for.
When deciding which form of bankruptcy you qualify for, the may need to take the Means Test. This simply examines your finances to see if you have the disposable income necessary to pay down your debt. If so, you can file Chapter 13 bankruptcy. Otherwise, you will need to file Chapter 7 bankruptcy.
7. You can lose your home with Chapter 7 bankruptcy.
When you file Chapter 7 bankruptcy, you are allowed to discharge your debt, meaning you no longer need to pay on your mortgage. However, this also means the lender can repossess your home. If you want to keep your home, Chapter 13 might be a better route. Otherwise, Chapter 7 provides a way of reducing your debt load.
6. Chapter 7 bankruptcy may be ideal for people going through foreclosure.
As we said before, declaring Chapter 7 bankruptcy halts the foreclosure process. In some cases, you can discharge other debt besides your mortgage and negotiate with your lender to continue payments and keep your home. If you can’t afford a mortgage, then Chapter 7 relieves you of the debt and the house.
5. Chapter 13 bankruptcy doesn’t discharge debt, but instead restructures it.
Unlike Chapter 7, Chapter 13 bankruptcy doesn’t just cause your debt load to vanish. Instead, your debt is restructured in way to make payment easier, allowing you to keep your home and maintain payments. You keep your assets while addressing your crushing debt.
4. You must maintain your payments following Chapter 13 bankruptcy.
Remember, Chapter 13 bankruptcy allows you to keep your home as long as you keep up with your restructured mortgage payments. Otherwise, courts could allow your lender to restart the foreclosure process and take your home.
3. You can convert Chapter 13 bankruptcy to Chapter 7 bankruptcy in certain circumstances.
What if you file for Chapter 13 bankruptcy but are still unable to handle the payments? In some cases, a homeowner can convert his/her Chapter 13 bankruptcy to Chapter 7. However, this means your home may be sold to pay the debt.
2. Homestead exemption helps protect equity in your home.
A homestead exemption allows homeowners to lower the value of their home to lower property tax burden and helps prevent the forced sale of home in certain circumstances. Before filing for bankruptcy, look into the homestead exemption laws in your state to see what can be done to assist you.
1. Chapter 7 bankruptcy may lead to the loss of valuables inside in the home.
In some cases, your home won’t be the only asset at stake during a Chapter 7 bankruptcy. A bank-appointed trustee will be assigned to select assets to sell to pay down the debt. In addition to your home, any number of your valuables may be included as well.