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While specifics will vary by state, here’s how the exemption works. When you get a mortgage, your mortgage company gives you a loan. The lender lets you borrow money in order to buy a property.
Which Exemptions Apply?
The trustee will send you a letter asking you to mail them certain financial documents, like tax returns, pay stubs, and bank statements. If you don’t send the trustee the requested documents following the instructions provided in their letter, you may not get a discharge of your debts. A bankruptcy discharge doesn't wipe out certain non-dischargeable debts like child support obligations, alimony, and recent tax debts. If you have any co-signers, they won't be protected by your personal bankruptcy.
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During chapter 13, your monthly payments will be made either voluntarily, or directly through a paycheck withdrawal. In either case, the payment is sent to your bankruptcy trustee, and the bankruptcy trustee will disburse the funds to your mortgage company and other creditors. At the end of the plan, some of your debt balances can be discharged, meaning you don’t have to pay the remaining bill. You will, however, have to continue making any payments that are due on your mortgage. But unlike chapter seven bankruptcy, chapter 13 can save certain property, including your home. Without any mortgage or liens on your property, it’s very possible that your home will be worth enough for the trustee to sell.
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Finally, jumbo loans still have a 7-year waiting period before you can apply. If the bankruptcy was dismissed, there’s a 4-year waiting period until you can have your credit pulled for a new conventional mortgage. To understand how Chapter 7 bankruptcy impacts a home mortgage, you must first understand the difference between a loan and a lien. This depends on whether you’re on the hook for a deficiency balance after the foreclosure or have other debt you’re struggling to pay. The truth is that filing a bankruptcy case is an extremely effective way to get rid of the debt you can’t pay. This can make it easier for you to keep your home, not the other way around.
Filing chapter 13 can help you manage debt, but it’s not always the best solution. It can cause severe damage to your credit, and only about only about 35% of the people successfully complete their chapter 13 payment plan. It’s uncommon for mortgage payments to be reduced when you file bankruptcy. Even if you’re not required to set up automatic payments, it can be a good idea to choose this option, since it can help ensure you stay on track with your chapter 13 plan. Keep in mind, your homestead exemption can typically only be used to protect a single property. And, depending on how the real estate market is trending in your area, the value of the home may increase after filing, which can result in renewed interest by the trustee.
What Happens to Your Mortgage After Chapter 13 Discharge?
Luckily, most bankruptcy attorneys offer free consultations. Take advantage of this free legal advice to get a better sense of what the right choice is for you. Also, remember that there are local legal aid organizations that provide free or low-cost legal assistance to low-income individuals.
What Are Chapter 7 Bankruptcy Exemptions?
With a reaffirmation agreement, you promise to repay your mortgage debt that would otherwise be discharged in your bankruptcy case. This strategy can give you the chance to keep your home and improve your credit score through on-time mortgage payments. As soon as you file for bankruptcy, the court will issue an automatic stay. This will stop creditors from collecting on debts that you owe. It will also pause foreclosure proceedings and allow you to keep your home during your case.
Fortunately, there is a good chance you can keep your home when you file for bankruptcy. Bankruptcy is intended to give you a fresh start and provide relief from creditors. However, filing for it can significantly damage your credit report for up to 10 years. It can also be quite expensive as you’ll have to pay for filing fees and attorney fees. If possible, you should avoid bankruptcy unless you’ve exhausted all alternative options.
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When you complete a Chapter 7 bankruptcy, your qualifying debts get discharged, including your mortgage debt. However, even though you won't be liable for your mortgage, the lender will still have a lien against the property because Chapter 7 bankruptcy does not get rid of mortgage liens. So, if you stop paying your mortgage, the lender is legally allowed to foreclose on your property. Most people who file for Chapter 7 bankruptcy end up keeping all their property. Before filing for bankruptcy, it’s very important to know which exemptions will apply to your property and whether they can protect your property.
The amounts vary by state, but the types of things you can exempt are limited to what you need to get by. This means that anyone filing bankruptcy can protect certain types of property up to a certain amount. For example, say your car is worth $3,500, and the exemption for motor vehicles in your area is up to $6,000. In this case, you'd be allowed to keep your vehicle because its value is lower than the exemption amount.
We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. Nineteen states allow you to choose between their state exemption system or a separate set of federal bankruptcy exemptions. You cannot mix and match from the two different exemptions systems. In a Chapter 7 bankruptcy, the court would consider what you had in equity, after the exemption, to pay off your debts. If your equity after the exemption is little or nothing, you would likely be allowed to keep your house, since selling it wouldn’t generate much money.
Many people who would lose their homes in Chapter 7 or don't qualify for Chapter 7 find relief in Chapter 13. Chapter 13 works by letting you force a lender into a three- to five-year payment plan. The lengthy repayment period gives you time to catch up on overdue mortgage payments or pay to keep a home you would lose in Chapter 7. In certain situations, you may have the option of reaffirming the debt to avoid losing the house if you continue making your payments. However, it’s best to talk with your bankruptcy attorney and mortgage servicer about your options and how to handle the process. The lender can ask the court to lift the automatic stay to allow foreclosure proceedings to continue.
The court will likely grant the request if the trustee doesn't plan to sell the home. Alternatively, the lender can wait until the bankruptcy ends, proceed with foreclosure, and sell the house at auction. Either way, almost all states permit residents to protect some home equity with a homestead exemption. You might be able to exempt even more with a wildcard exemption. If your exemptions adequately cover your equity, the trustee won't sell your home in Chapter 7. Whether bankruptcy is right for you depends on a number of factors but the fact that you own your home doesn’t have to be one of them.
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