If you are coping with foreclosure, bankruptcy could save your home. While bankruptcy might not just make your mortgage go away, if you want to keep your home, bankruptcy gives you options. Whether or not you’re facing foreclosure, bankruptcy could make your home both more affordable and more valuable.
You have other options besides bankruptcy, including modification and surrender, all of which you should consider. But if you face multiple sources of financial pressure or have exhausted your other options, filing bankruptcy could save your home.
If you are not facing foreclosure, but you’re having trouble paying your other bills, bankruptcy could make your home more affordable. And if your home is under water, bankruptcy can make your home more valuable. In short, bankruptcy could save your home.
Filing Chapter 13 Bankruptcy Could Save Your Home
When you file for bankruptcy, you get immediate protection from creditors through the Automatic Stay. The Automatic Stay stops foreclosure if you file your bankruptcy prior to the auction. Chapter 13 bankruptcy is often used to gain time to obtain a mortgage modification or explore other workout options.
When you file for bankruptcy, you can get rid of (or “discharge”) many types of debts. But you generally cannot get rid of mortgage debt. In “secured” mortgage loans, your home serves as collateral guaranteeing the loan. If you want to keep your home, Chapter 13 bankruptcy allows you to get current on your mortgage payments. A successful Chapter 13 bankruptcy means that the bank may not foreclose on you for at least five years.
In a Chapter 13, you may be able to reduce your monthly debts payments are reduced to a three- to five-year repayment plan. Your income, assets, and classification of debt determine your repayment plan. By renegotiating and reducing your other debts, your home payments may become more affordable so you can keep your home.
Chapter 7 Bankruptcy Could Make Your Home More Affordable
If you are current on your mortgage but are falling behind on other bills, Chapter 7 may be right for you. By having your other debts discharged in Chapter 7, your monthly mortgage payments may become more affordable. Chapter 7 requires liquidation of unexempt assets, including real estate. Yet it is very likely that you will be able to keep your home in a Chapter 7 bankruptcy. If you are current on your mortgage but at risk of falling behind, Chapter 7 might be right for you.
A Bankruptcy Lien Strip Could Make Your Home More Valuable
You could also lien strip your second mortgage or home equity line of credit and discharge it in a Chapter 13 bankruptcy. If your home is worth less than the first mortgage, there’s no actual security for the second mortgage. Chapter 13 allows you to reclassify these types of loans as unsecured and discharge them through your Chapter 13 plan.
Ask an Attorney If Bankruptcy Could Save Your Home
An experienced attorney can help you to determine how to respond to foreclosure, or whether bankruptcy could make your home more affordable. Bankruptcy may be your last option, or it may be your first. But you should examine all of your financial circumstances when considering how your home fits into your financial future.