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If this is the case, you’ll need to figure out whether your state’s homestead exemption is high enough to cover your equity. However, the trustee will sell the house if your exemptions protect only a portion of your equity. The sales proceeds will be used to pay mortgages, HELOCs, and liens. Creditors will receive whatever remains after deducting sales costs. Credit counseling through a nonprofit agency can help you develop a debt management plan with payments you can afford so you can avoid bankruptcy. If the credit counselor is able to work with creditors to lower the payments and interest rates on your unsecured debt, like credit cards, it could avert a bankruptcy filing.
Bankruptcy Exemptions FAQ
If you want to know the specific items your state will allow you to protect, keep reading—we take you through the process step-by-step. Once you've mastered this area, it's a good idea to review some other things you should know about filing for bankruptcy. Dealing with loans that are backed by your home can be complicated in a chapter 13 bankruptcy. It's possible to keep your home in bankruptcy, but the following two problems can cause you to lose it unless appropriately addressed in the correct bankruptcy chapter. As an additional benefit, you might even be able to shave off a junior mortgage or home equity line of credit ("HELOC") if you owe more for your home than what it's worth.
What’s The Difference Between Chapter 7 And Chapter 13?
This means the bank has a sort of ownership interest in the real estate. As long as you make your monthly payments, the home is yours to keep. If you don’t pay your mortgage, the bank can take the house back by way of a foreclosure.
Should you file for Chapter 7 or Chapter 13 bankruptcy?
The Mississippi homestead exemption is $75,000, whether you’re a single filer or you’re married and filing jointly. If you’re current on your mortgage and the value of your home isn’t much higher than your outstanding mortgage balance, you can likely keep your house in a Chapter 7 bankruptcy. If you have significant equity in the home or if you’re behind on your mortgage payments, you’ll have a few options to consider. Read on for more information about how filing Chapter 7 bankruptcy might affect your mortgage and property rights. In Chapter 7, the court will grant the lender's motion to lift the stay if the home doesn't have enough equity to protect the lender from loss.
How Does Chapter 7 Bankruptcy Affect My Existing Mortgage?
The majority of dismissed cases was because homeowners didn’t or couldn’t make their payments. Whatever the reason, the debts are still owed, which puts you right back where you were before filing. The good news about filing for Chapter 13 bankruptcy is that it’s designed to allow you to keep your house. With Chapter 13, you, the bank and your creditors all decide on a repayment plan that takes three to five years, but your assets are not sold off.
While this article is intended to serve as a resource, it’s in no way meant to serve as legal advice. Be sure to consult with a law firm that has bankruptcy attorneys who can discuss options and procedures in your jurisdiction. You don't get to wipe out or "discharge" your mortgage and keep your home.
Can You Reduce Your Mortgage in Chapter 13 Bankruptcy?
Planning reduces the risk of losing the house and avoids the costs of defending a needless motion. With a chapter 13 bankruptcy, you won’t lose your property. You’ll include details in your repayment plan on how you plan on paying your mortgage. In most cases, an automatic stay is issued once Chapter 13 is filed. An automatic stay means that creditors must stop collection efforts.
How Long Do I Have To Wait After Chapter 13 To Get A New Mortgage?
In this plan, you pay down some of your debts through a Chapter 13 trustee. At the end of your plan, the rest of your eligible debts are discharged. Your monthly payment is based on how much you’re able to pay. This is determined by the means test analysis, your actual income and expenses and the terms of your repayment plan. The Chapter 7 trustee is an official appointed by the court to oversee your case and liquidate, or sell, nonexempt property for the benefit of your creditors.
In addition to state exemptions, there are federal exemptions. Some states allow filers to choose between state and federal exemptions. The federal homestead exemption will also be available to you if your state doesn’t allow you to claim residency because you’ve lived there for less than two years. If you have multiple homes, take note that the homestead exemption can only be applied to one property, usually your primary residence. Aaron fell behind on his mortgage and owed $15,000 in arrearages when he filed for Chapter 7 bankruptcy.
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Instead, you’ll pay back the investment and a percentage of your home’s future appreciation anytime during a 30-year term. But the amount of these items that you are able to protect varies by state. Bankruptcy was created because Congress believed that Americans who are in financial trouble often need a “fresh start” in the form of a bankruptcy discharge.
Your bankruptcy discharge will probably happen sooner than you think! Also, gathering your financial documents and getting organized for your bankruptcy filing can bring some order to what feels chaotic and out of control. And you're upside-down on your car loan, you may be able to redeem the car loan.
Finally, because bankruptcy involves a major credit hit, you should consider all possible alternatives. If you’re having trouble making your mortgage payment, you might consider applying for a modification, short sale or deed in lieu of foreclosure. It’s possible to get a mortgage after bankruptcy is dismissed or discharged.
Instead, bankruptcy exemption laws protect property people need, like a working car, furnishings, and clothing. To determine if the full equity in your home is protected by the homestead exemption, you’ll need to determine your property’s fair market value, then subtract your state’s exemption(s). For example, let’s say you live in Mississippi and you own a home worth $100,000.
In principle, your trustee is entitled to seize and then resell your car. From the sale proceeds, the trustee would have to give you your $5,000 exemption amount first. In reality, though, the trustee will have significant costs in seizing the car and then reselling it, so after all these costs are factored in the trustee will have less than $5,000.
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