Purchasing a home is perhaps the largest investment most people will ever make. It is therefore understandable that there is a significant fear of losing the house you worked so hard for, when filing for bankruptcy. In fact, one of the first questions a bankruptcy lawyer is usually asked is: “Will I get to keep my house?” However, what that question fails to recognize is that bankruptcy is not the deciding factor in whether a home is part of the equation.
Whether you file for bankruptcy or not, your house is at risk if you simply cannot afford to make repayments. Ideally, most lenders would prefer if you kept your home, as that means steady repayments, rather than having to facilitate the resale of another house. Here are some of the common scenarios that may apply to you in respect to keeping your house:
If your house payments are up to date and you file for Chapter 7, you should be able to keep your home so long as you can continue to keep current on those payments as long as equity is not an issue. The option of refinancing may become an option. However, you should tread carefully as the lender could also decide to foreclose at a future date if payments are missed. Being behind on payments does not necessarily lead to foreclosure, either. The lender may give you a grace period in which to make up the loss and get back to the agreed payment schedule.
In the case of filing for Chapter 13 bankruptcy, good standing and the ability to continue making regular payments is usually taken into account. A court will likely look favorably on your case and prevent the lender from pursuing foreclosure for the life of the plan as long as you can make the regular house payments as they come due each month. This will give you the opportunity to get your finances back on track and avoid losing your house.
Being behind on your house payments when filing a Chapter 13 is usually a different scenario. You will be provided with the opportunity catch up on payments under Chapter 13, as well as continuing to keep up to date with your normal monthly payments. As part of the Chapter 13 plan, you will be expected to have the financial stability to make up arrears in payments, without exceeding a timeframe of 60 months. This includes your regular payments, which means those who cannot feasibly manage the payment amount, in addition to other living costs, may wish to relinquish the house or pursue a more suitable alternative to a Chapter 13 bankruptcy.
There are scenarios where a Chapter 7 Trustee may opt to sell a house if there is enough equity involved to make it worthwhile. This typically applies to equity well in excess of $20,000, (value in excess of the debt).
Filing Chapter 11 bankruptcy is typically much more complicated than filing Chapter 7 or 13. Much like with a Chapter 13, you are typically expected to make full monthly house payments and catch up on any missed payments. Debtors may have a lot more breathing space by filing a Chapter 11, depending on the circumstances of the individual. For more on keeping your house when filing bankruptcy, contact H. Lehman Franklin for an expert consultation today.