Americans have struggled financially since the recession began several years ago: the economy has been slow to rebound and the unemployment rate continues to hover around 9.0 percent. As a result, bankruptcy filings have increased as more people need relief from their debt.
There are many uncertainties people face as they contemplate filing for bankruptcy. One major issue is whether an individual (or family) will be able to keep his or her home. The answer, of course, will depend upon a debtor's specific situation, as well as what chapter of bankruptcy they are eligible for.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, debtors liquidate (sell) their non-exempt property in order to pay back their creditors. However, people are allowed to exempt certain property. These items include, among others, sentimental items, necessities, certain personal property, as well as homesteads up to a certain value.
Debtors who qualify for Chapter 7 have the choice to accept the state or federal exemptions. State and federal exemptions often differ, so people should speak with an experienced bankruptcy attorney to determine which will be most beneficial in their situation.
Bankruptcy provides immediate relief from your home being foreclosed on. An automatic stay goes into effect once a bankruptcy petition is filed. This stay prevents creditors from continuing any collection efforts including calls, letters, e-mails or showing up at a person's place of residence. There can be severe consequences if creditors violate the stay, so debtors can breathe a sigh of relief knowing they have temporary solace and peace of mind.
In a Chapter 7 bankruptcy, your home will not be foreclosed on if you are current on your mortgage payments. Chapter 7 may be desirable for people who are behind on mortgage payments, cannot afford their homes, and want to release their home back to their secured creditor without being liable for any deficiency judgment that might arise after the creditor resells the home. In addition, if the homeowner has past-due payments, he or she only needs to pay the past-due payments before the bankruptcy case is over in order to keep the home. However, this is typically not the case because homeowners who are being foreclosed on are usually are not able to repay their past-due payments all at once. In this instance, Chapter 7 does not provide a homeowner much protection in keeping a mortgaged home.
Chapter 13
Not all people will file for Chapter 7 bankruptcy to stop a foreclosure. Chapter 13 is another option for people with enough income to adhere to a repayment plan in order to repay past-due mortgage payments. This will allow you to keep your home from foreclosure. Additionally, Chapter 13 gives debtors the same immediate relief from collection efforts as an automatic stay goes into effect upon filing a petition.
Unlike Chapter 7, Chapter 13 bankruptcy allows you a three to five year period to repay your past-due mortgage payments. Essentially, a person who files under Chapter 13 combines his or her debts into a Chapter 13 plan and sets up a repayment schedule based on his or her disposable income. All creditors must abide by this plan once it is accepted by the court, so long as a debtor stays current on his or her payments, they will be able to keep all of their property (including their home). Upon final payment of the plan, a homeowner can have his or her past-due mortgage payments caught up and any other unsecured debts not paid discharged.
Bankruptcy is governed by very complex statutes and determining eligibility can be very difficult. People contemplating bankruptcy or who have fallen behind on their mortgage payments should speak with a qualified bankruptcy attorney immediately to discuss their options.
