Some debtors in need of filing bankruptcy are hesitant to do so because of one reason: they don’t want to lose their home. This can lead to serious debt issues and stress they might have been able to avoid if they had instead asked a knowledgeable bankruptcy attorney what can happen to a person’s home after they have filed bankruptcy.
Numerous factors can come into play and help determine whether the home is safe from seizure in a bankruptcy. It is imperative that the debtor research their situation, whether by consulting with an attorney or finding out themselves, prior to making a decision on filing bankruptcy.
There are two chapters in bankruptcy: Chapter 7 and Chapter 13. While Chapter 13 is the safest bet for saving your home, it is not always the necessary choice. Filing a bankruptcy does not automatically mean that your house will be taken from you. In fact, it is far more likely that the debtor will be able to keep their home in either chapter of bankruptcy.
Example
The most typical situation for a debtor who is also a homeowner finds him struggling to pay his unsecured credit cards and medical bills, while also ensuring his mortgage payment is made every month. Assuming the debtor/homeowner has his priorities in order, he will pay his mortgage every month to avoid foreclosure. If this debtor/homeowner qualifies for Chapter 7, he should be able to keep his home in most situations.
While filing a bankruptcy automatically discharges all debt able to be discharged, including home loans, the debtor can sign a reaffirmation agreement with the mortgage company. The reaffirmation agreement is filed with the bankruptcy court and ensures that the reaffirmed mortgage stays an official debt owed by the debtor and can resume after the bankruptcy is closed. Many debtor/homeowners can easily keep their homes while still getting the financial fresh start they desire.
Amount of Equity
The only roadblock to the above situation can occur when the house has a large amount of equity. Most homeowners with mortgage loans do not have enough equity in their homes for this to be a problem. With the Georgia Homestead Exemption, a Georgia debtor/homeowner may exempt $21,500 of equity.
Note, however, that the debtor is current with his mortgage payments. A debtor who is not up to date can always be foreclosed on, even after bankruptcy. The average debtor should be able to file Chapter 7 and keep their home as long as they are not behind on their mortgage.
Overdue Mortgage Payments
The debtor who is behind on their mortgage is in a much different position. While mortgage modification mediation exists in Chapter 7, it is much more difficult due to the short timeline between the case being filed and the case being closed.
This is where Chapter 13 comes into play. The majority of people who file bankruptcy to save their homes are going to file Chapter 13. The process of a Chapter 13 is much more conducive to saving a home from foreclosure than Chapter 7.
A Chapter 13 allows the debtor to catch up on their mortgage arrears while they are in the bankruptcy process, where the home is protected by the automatic stay that is imposed on all creditors when the bankruptcy is filed. The debtor will either catch up with the monthly payments based on their proposed plan or they will have the opportunity to get a modification through the mortgage mediation modification program (most bankruptcy districts have a program of this type). The modification could significantly reduce the monthly payment and make it easier for the debtor to catch up in the allotted time.
For debtors who have too much equity in their home that cannot be protected in a Chapter 7, a Chapter 13 gives them more time to repay the equity or find a loan that will have the same effect.
The main point to remember is that homeowners who are filing bankruptcy do not have to lose their homes in bankruptcy. Chapters 7 and 13 provide plenty of protection for homeowners. As long as homeowners first investigate their options and understand how their homes can be affected, they should be able to keep their homes and get their financial fresh starts.