People file for bankruptcy when they’re deep in debt and see no light at the end of the tunnel.
Bankruptcy won’t destroy your life. It can, instead, give you a new lease on life. Sinking deeper into debt, facing harassing calls from debt collectors, and stressing out over your situation can take a toll. Sometimes, bankruptcy is the best option based on your circumstances. It won’t be smooth sailing since the hit to your credit won’t recover for about a decade. But you’ll have the financial flexibility to breathe and build toward a stronger and more stable future.
But if you decide a bankruptcy filing is best, the last thing you want is to lose your home. You won’t automatically lose your home with a filing. But it’s not a given that you’ll get to retain it. You must consider the kind of bankruptcy you’re filing, the status of your mortgage payments, and the amount of equity you have in your residence.
Here are some things to know if you don’t want to lose your house. It’ll be broken down into two sections based on what kind of bankruptcy you choose. Talking to a bankruptcy lawyer is a good idea.
1. Chapter 7 Bankruptcy Filing
Chapter 7 is one option if you wish to file for bankruptcy. Going this route means your personal loans, credit card balances, medical bills, payday loans, utility bills, and lease contracts. After those debts are discharged, you should have enough money to honor mortgage payments and retain your home.
But here’s the thing. If you’re still incapable of paying your mortgage after discharging so much debt, you’ll have a problem. The reason is that you could lose your home in such a scenario. Be proactive if you foresee difficulty paying your mortgage even after a bankruptcy filing. Don’t wait around and do nothing when you realize you don’t have the financial capacity to honor your mortgage commitments.
Your best bet is to contact your mortgage provider before a bankruptcy filing and arrange an agreement that helps you catch up on any past-due mortgage payments. Again, it’s best to get this arrangement in place before a Chapter 7 filing when you have some control over the matter. You’ll have less control during the bankruptcy process. By that point, the presiding judge will determine what will become of your assets.
Aside from working out an agreement with your mortgage provider, your home will be safe if you owe more for your home than it’s worth or if you’re not behind on mortgage payments.
As you can see, there are many things you can do to reduce the risk of having your home taken from you after a bankruptcy filing.
2. Chapter 13 Bankruptcy Filing
If you want a more sure way to keep your home after a bankruptcy filing, choose the Chapter 13 route. If you file a Chapter 13 bankruptcy, you’ll get the chance to arrange a multi-year repayment plan that doesn’t include selling your house.
After meeting your prepayment plan obligations, your unsecured debt will be dismissed. If you’re behind on mortgage payments, a plan will be reached to help you catch up. You’ll be required to catch up while staying on top of current monthly mortgage payments.
If you’re considering bankruptcy but worry about losing your home, the good news is there are ways to protect your residence, whether you file for Chapter 7 or Chapter 13. You owe it to yourself to consult a bankruptcy lawyer who can answer your questions, dispel any myths or misconceptions about bankruptcy, and help you pursue a filing if that’s the best path forward.
