Will I Lose My House If I File?
Many people confronted by mounting debt and insufficient-to-no income consider a declaration of bankruptcy at some point. One of the major deterrents to actually filing is the fear that the person in debt (the "debtor") may lose their home in the process. While this concern is not wholly unwarranted, in certain circumstances the opposite may be true -- declaring bankruptcy can sometimes rescue a home from foreclosure. The key is to understand that there are different types of personal bankruptcy. You need to do some research and get advice from a legal bankruptcy expert to figure out which sort will save you from demanding creditors while not putting your home as risk.
Chapter 7 Bankruptcy (for Individual Debtors)
Chapter 7, also known as "straight" or "liquidation" bankruptcy is one option for wiping out the majority of a person’s debts. While it can also be used for business purposes, when it comes to individuals it is a viable option for those who are unemployed or otherwise have extremely limited incomes, while at the same time have debts for which they can barely meet the minimum payments (or make any payments at all). Any debts left over after the sale of non-exempt assets are usually forgiven, minus a few exceptions such as child support payments or most student loans. It is this form of bankruptcy that is associated with the potential loss of one’s home, as under this declaration, certain possessions are sold and the proceeds used to pay off their debts. The debtor’s property may have liens or mortgages placed against it during this process that effectively pledges their home to creditors. If the debtor otherwise pays off the creditor who has been granted a lien or mortgage on the debtor’s home, the debtor will remain in possession of their home. The Bankruptcy Code also allows debtors to claim exemption for certain property under either federal or state laws. Depending on the jurisdiction of your home state, you may be able to have your home classified as partially or wholly exempt (known as a "homestead exemption"), and thus out of reach of creditors. A bankruptcy attorney representing debtors in your home state can explain whether this exemption applies to you before you file, so that you know whether a declaration of Chapter 7 bankruptcy is a good risk or not.
Chapter 13 Bankruptcy
Chapter 13, also known as "wage earner’s" bankruptcy, is a good option for debtors who do not wish to risk losing their home under a Chapter 7 declaration. If you have a job or other source of relatively steady income, and are only seeking assistance in paying off your debts, Chapter 13 may work well for you. Under this form of bankruptcy, the debtor adopts a repayment plan that allows their loans to be repaid over a three to five year period. Chapter 13 bankruptcies can actually help you keep your home, in that they can be used to end any foreclosure action against your home and to eventually resolve any issues arising from delinquent mortgage payments. However, you will still need to make all mortgage payments on time even while following the Chapter 13 repayment plan. Your mortgage for your primary residence is not eligible for rescheduling under a Chapter 13 plan, nor can payments be spread out over the life of the plan (the way they can for other exempt items). In conclusion, any debtor that fears their home may be at risk if they file for bankruptcy should contact an experienced personal bankruptcy attorney before proceeding with any formal court action. There may be more choices for alleviating your debt situation which a lawyer can help identify and implement on your behalf.
Article presented courtesy of The Law Offices of Todd B. Becker in Riverside and Los Angeles bankruptcy attorneys, (800 946-6332), www.toddbeckerlaw.net.
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