Americans are still filing bankruptcy in record numbers, and with good reason. The economic downturn, including the fall of housing prices and the increase in unemployment has wrecked havoc on our finances. The truth is, that in many cases, bankruptcy is a wise decision for many, since it wipes away debt and interest payments that would take years to pay off, if you are only making minimum payments.
Unfortunately, many people do not file bankruptcy because of misinformation. One of the most common questions people ask when contemplating bankruptcy is “will I lose my home?” However, in today’s economy, where few people actually have much equity, the answer is NO!
The bankruptcy trustee will first determine whether your home has equity, and how much. This involves determining the current market value of the home, and subtracting the pay off amount, cost of sale, and any liens. If the equity is below specific homestead exemptions, you keep your home provided of course, you stay current on your monthly mortgage payments. The general rule of thumb is that if you continue to make your payments on time, the lender prefers that you stay in your house. Mortgage lenders, contrary to popular belief, are not anxious to foreclose on a property. It means a loss to them, as they will have to spend money holding the property and preparing it for resale.
Bankruptcy is also helpful if you are seriously behind on mortgage payments. IT will stop a foreclosure in its tracks, and through a Chapter 13 bankruptcy, provide you with a plan to amortize mortgage arrearages over a 5 year period.
In bankruptcy, there are exemptions, which render certain property outside the reach of bankruptcy. State law provides that the debtor be allowed to keep personal property up to a certain amount, for instance. If the debtor avails himself or herself of an exemption, that property cannot be used by the bankruptcy court to pay creditors. Specific exemptions are provided through both federal and state law that enable most people to keep their home, since these exemptions usually exceed the home’s equity in today’s real estate market.
Chapter 7 & 13
There are several types of bankruptcy, each with different sets of rules and criteria. The most common two types of bankruptcy are Chapter 7 or Chapter 13. Two other types, Chapter 11 and Chapter 12, are lesser known and not used as often. Chapter 11 is used by business owners, and Chapter 12 is for family farmers. Single or married individuals typically use both Chapter 7 & 13. In a Chapter 7, debts are discharged. In a Chapter 13, the debts are reorganized and paid back to the extent that the party is able.
What Should I Do?
If you are a home owner, filing for a Chapter 7, the first thing to do is find out whether your home has equity. If there is equity, you and your bankruptcy attorney can determine if you qualify for an exemption. Typically, in California, the homestead exemption for a married couple is $75,000.00, with higher limits for seniors. Keeping your home pursuant to an exemption is conditioned on the understanding that you will continue to make your mortgage payments.
However, if you still have significant equity, and the exemption is not enough to protect all of the equity in your home; you could still use a Chapter 13 debt reorganization with some partial payments and still protect your home.
Speak with a Lawyer as soon as possible.
If you are considering bankruptcy, it is important to speak with a bankruptcy lawyer right away. This is particularly important if you have a large asset, like a home that you would like to keep. Your lawyer will have knowledge of the various exemptions available to you, and offer you sound advice to ensure your bankruptcy goes smoothly. There is a lot at stake, so it is important to give yourself every chance of success.
Contact attorney Paul M. Allen at the Law Offices of Paul M. Allen to learn more. I have helped many working class families resolve their financial problems, and I can help you too. Get the fresh financial start they deserve. I can help you too.
If you have a tax issues, or other financial problems, give my office a call. I will personally meet with you and provide you with practical options to your problems. Call the Law Offices of Paul M. Allen today at (818) 552-4500. They have two convenient locations: Glendale and La Palma.
(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)