Mounting debt can feel crushing and overwhelming, and at some point, you may find yourself considering bankruptcy.
Although in the past bankruptcy used to be seen as a sign of failure, today it is known as a legitimate financial tool for people who experience an unexpected event, life change, or financial problems that are too difficult to predict and impossible to overcome. Life is unpredictable and Bankruptcy is a legitimate tool for unforeseeable events. Bankruptcy gives you a fresh start and leaves you with a clean slate making it easier to start over financially.
Perhaps you have heard that you cannot keep your home in Chapter 7 bankruptcy. This is not always true, even if you have missed payments or your home has already gone into foreclosure.
The fear of losing your home should not necessarily prevent you from filing. This is especially true if mortgage payments are current. However, even if the mortgage is not current, depending on your situation there may be ways to file bankruptcy while keeping your home.
Staying in your home is a valid priority. A home provides stability and routine and is a place you may have created many fond memories. If you have children or animals, the thought of uprooting them from their familiar environment might seem like a nightmare.
A Chapter 7 bankruptcy is designed to discharge, or eliminate, all your qualifying debts. Those debts usually consist of credit card bills, medical bills, and other unsecured debts. Unsecured debts are those debts you did not put up collateral (property) for. Your home mortgage is a debt secured by your home. However, you may qualify to have your mortgage bypass the process as long as payments are made and the mortgage brought current eventually.
The automatic stay stops the foreclosure process
Something called the automatic stay goes into place immediately after you file a Chapter 7 bankruptcy. This requires all creditors, including your mortgage company, to stop all collection efforts.
After the automatic stay goes into effect, the foreclosure process must stop. If the foreclosure process has not yet begun, it cannot be started while your bankruptcy is pending.
Chapter 7 bankruptcy uses some of your assets to pay off your debts, which is why there is a possibility of losing your home. A court can order that your home be sold to pay your debts.
However, there is a homestead exemption that you could potentially use to keep your home. This exemption allows you to keep some of the equity you have built up in your home. The purpose is to allow you to keep some assets so you are not left with nothing.
The smaller the amount of equity you have left in your home after the exception is applied, the more likely it is that you will be able to keep your home. The reason is because if there is little to no equity left, selling your home would not provide much money to creditors.
This means the bankruptcy court might allow you to stay in your home because selling it would not be worth it.
What if you have no equity in your home? This means that you owe more for the home than what you could receive if you sold it. If this is the vase, you cannot claim the homestead exemption, but you will also likely not be ordered to sell your home.
If your debts are discharged, can you still pay your mortgage?
A bankruptcy will allow you to stay in your home, but you must still make your mortgage payments after the bankruptcy to keep your home. A bankruptcy does not discharge any future mortgage payments.
Paying your mortgage after bankruptcy should be easier. Since your other debt is discharged, more money will be freed up to make mortgage payments.
If you are still in a situation where you cannot make your mortgage payments even without any additional debt, this is the time you should start thinking about other options, such as selling your home.
These are major decisions and whether a bankruptcy court allows you to keep your home depends on many different factors. It is best to have your situation thoroughly reviewed by a competent bankruptcy attorney before deciding what to do next. The O’Neill Law Firm offers a free confidential, no-obligation consult. At this consult, you and your attorney can arrive on a plan to eliminate as much debt as possible and still stay in your home.