Chapter 7 Bankruptcy And Mortgages
The goal of filing for Chapter 7 bankruptcy is to have your debts discharged so that creditors can no longer take collection action against you. While the automatic stay temporarily stops creditors from hounding you, a bankruptcy discharge makes that protection permanent and gives you a legal mechanism to enforce the protection. You can sue creditors that try to collect on discharged debts.
A mortgage, although âsecured,â is still a debt and thus may be discharged like the rest. Once forgiven, you are âabsolvedâ and no longer personally responsible for paying the mortgage. Reaffirmation agreements, on the other hand, keep filers personally liable for making mortgage payments, even after a discharge. They essentially revive the mortgage as if the person had never filed for bankruptcy.
Secured Debt And Liens: What You Need To Know
A creditor is “secured” if it has the right to take a borrower’s property to satisfy the borrower’s debt. By contrast, an unsecured creditorsuch as a credit card or utility companyis limited to calling or sending letters asking for payment .
A lien can be voluntary or involuntary.
- Voluntary liens. Typically, secured creditors include mortgage companies and car lenders. In both transactions, the borrower voluntarily agrees to guarantee the loan by giving the lender an interest in the property purchased with the loan proceeds. For instance, when taking out a home loan, the borrower gives the lender a lien by agreeing to put up the house as collateral. If the homeowner falls behind on the payment, the bank can initiate a foreclosure proceeding, sell the home at auction, and use the proceeds to pay down the loan. A car buyer gives a lender similar lien rights when financing a vehicle. If the borrower doesn’t pay as agreed, the creditor can repossess the car, sell it at auction, and apply the money toward the loan balance.
- Involuntary liens. Not all liens are voluntary. If you fail to pay your income taxes, the federal government can take steps to obtain a lien against your assets without your consent . An unsecured creditor can do the same by filing a lawsuit and winning a judgment for the amount you owe. While most voluntary liens are limited to particular property, such as a home, car, or boat, an involuntary lien can extend to all of a debtor’s assets.
How Are Exemptions Determined In A Chapter 7 Bankruptcy
Since your house has to be considered exempt from the bankruptcy in order to have the most favorable scenario for keeping your house, its important to know how exemptions are determined. How your home is handled in a bankruptcy is determined by state or federal homestead exemptions. While specifics will vary by state, heres how the exemption works.
Theres usually a certain period you must have lived in the house before it can be considered for an exemption. For example, if you file under the federal statute, you must have owned the home for 40 months.
The second key determinant for an exemption is the amount of equity you have in the home, which requires knowing your home value. State and federal statutes let you exempt a certain amount of equity from being used by a trustee to pay off creditors and lenders. The exact amount that you can protect will vary from state to state.
Be sure to check the law in your state. Certain states allow you to double the amount of equity exempted if you file for bankruptcy jointly as a married couple.
The important thing to remember is that if you have enough equity that you fall above the exemption amount, your bankruptcy trustee may choose to sell your home to pay back creditors. Theyll pay you back for any exempted equity following the sale, but youll have to find a new home.
There are instances in which you may have options in deciding which exemption rules apply, so speak with your bankruptcy attorney.
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What Happens To Your Income
Throughout the bankruptcy process, you will be required to submit monthly revenue and expense reports to your LIT.
If you have surplus income, your bankruptcy term may need to be extended up to 36 months. However, if your income increases during your bankruptcy you may find a new job while you are bankruptcy your term wont necessarily increase. Your monthly income is based on your average monthly income, as opposed to income month over month.
Youwill also need to provide yourLITwith the appropriate information so they can file tax returns on your behalf.
Check Your Credit Report
Lenders look at your credit reporta detailed report of your credit historyto determine your creditworthiness. Although bankruptcy filings can remain on your credit report for up to 10 years, it doesnt mean you have to wait 10 years to get a mortgage.
You can speed up the process by making sure your credit report is accurate and up to date. Its free to check: Every year, you are entitled to one free credit report from each of the big three Equifax, Experian, and TransUnion.
A good strategy is to stagger your requests, so you get a credit report every four months . That way you can monitor your credit report throughout the year. One of the best credit monitoring services could also be useful in this endeavor.
On your credit report, be sure to watch for debts that have already been repaid or discharged. By law a creditor cannot report any debt discharged in bankruptcy as being currently owed, late, outstanding, having a balance due, or converted as some new type of debt . If something like this appears on your credit report, contact the credit agency right away to dispute the mistake and have it corrected.
Other mistakes to look for:
- Information that is not yours due to similar names/addresses or mistaken Social Security numbers
- Incorrect account information due to identity theft
- Information from a former spouse
- Outdated information
- Wrong notations for closed accounts
- Accounts not included in your bankruptcy filing listed as part of it
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Bankruptcy And Mortgage What Happens To Your Mortgage After Filing
How does bankruptcy affect mortgage? A major concern for many homeowners contemplating Chapter 7 or Chapter 13 bankruptcy in Houston is whether they will lose the roof over their heads as part of the bankruptcy process.
The good news is that your mortgage company cannot raise your interest rate or change other terms of your loan as punishment when you file for bankruptcy in Texas.
Can Filing Bankruptcy Affect A Co
Homes can be owned jointly by married couples or by people who have no other relationship than partnering on the investment of a home. There can be co-ownership by a couple to unlimited numbers of owners in a property. The ownership can be divided equally amongst the co-owners or it can be unevenly distributed by investment. So, what happens to the others when one of the co-owners files for bankruptcy? Will bankruptcy affect the co-owner of a house?
The answer to the question can be multifaceted, depend on the relationship of the co-owners, and the type of bankruptcy filed. There are basically two types of bankruptcies most individuals can file- a Chapter 7 or a Chapter 13.
A Chapter 7 bankruptcy, commonly called liquidation of your assets, is normally the simplest and quickest form of bankruptcy. A trustee that is appointed by the court will gather and sell your non-exempt property, and he will use the proceeds from the sale in order to pay your creditors.
A Chapter 13 bankruptcy, commonly called a wage earners plan, enables individuals with regular income to develop a plan to repay all or part of their unsecured debts over three or five years.
The affects of bankruptcy can be varied and complicated. Common sense indicates you might want to consult with a bankruptcy lawyer in order to help you understand how these complex laws might apply in your particular situation.
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Do I Need A Bankruptcy Lawyer
Filing for bankruptcy is a very complicated process. Bankruptcy law varies depending on where the action is filed and which chapter of bankruptcy is being pursued. A local bankruptcy lawyer will know the particulars of filing for bankruptcy, can recommend what chapter of bankruptcy is right for you, and can ensure that your paperwork is filed correctly.
If creditors are still trying to collect after a bankruptcy action has been filed, a lawyer may be able to halt such collection efforts and may be able to get you some money damages.
- No fee to present your case
- Choose from lawyers in your area
- A 100% confidential service
Are Debts Affecting Your Ability To Keep Up With Your Mortgage
Ask yourself this question: If I could deal with all of my other debts, would paying my mortgage be easier? We help people answer that question every day.
Its your home, so you always pay your mortgage, but you are falling behind on your credit cards and other bills, and you worry that you may soon also fall behind on your mortgage payments. You worry that you may lose your home.
You can file bankruptcy even if there is equity in your home. If you owe more money to your creditors than the value of what you own you are considered insolvent. If you are insolvent you are eligible to file for bankruptcy or proposal in Canada.
With up-to-date mortgage payments filing for bankruptcy does not mean you will automatically lose your house. In fact, by eliminating other debts that are making it difficult to keep up with your mortgage payments.
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Keeping Your Payments Current
Under Canadian bankruptcy law a secured lender, like a mortgage holder, is not permitted to cancel their loan simply because you have declared bankruptcy. If you are up to date with your payments, you can continue to pay your mortgage, even while you are bankrupt.
However, if you are in arrears or , the mortgage holder is not required to allow you to continue with the mortgage. Even if you are not bankrupt, if you are in arrears the mortgage lender can start foreclosure proceedings and sell your house.
Can You File Bankruptcy After Doing A Making Home Affordable Program
The federal Making Home Affordable plan does not stop you from filing for bankruptcy, nor does a bankruptcy filing disqualify you from the program. The Making Home Affordable Plan and the Home Affordable Modification Program both try to avoid foreclosure on a home, even if you’re contemplating bankruptcy.
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Effect Of Chapter 13 Bankruptcy On Foreclosure
In many cases, exemptions will not protect your home from being liquidated to repay creditors in Chapter 7 bankruptcy. However, if you want to stall the sale and try to negotiate with the lender, filing for bankruptcy can buy you that time. The Chapter 7 bankruptcy will also cancel any debt secured by your home, including the debt of junior mortgages or home equity loans. Filing for Chapter 7 is not a good choice for those who do not want to give up certain property, including in many cases their homes.
For most homeowners who want to keep their homes, Chapter 13 is a better choice because it affords more options. In a Chapter 13 bankruptcy, you can pay off the late payments over the length of the repayment plan, as long as you continue to meet your current mortgage payments as well. If you make timely payments under your Chapter 13 debt repayment plan, you can avoid foreclosure.
Some debtors may be legitimately concerned about the effect of bankruptcy on their credit scores. However, foreclosure not only damages your credit score for years, but it also does not get rid of other debt and can be harmful in future efforts to buy a house. If you receive a bankruptcy discharge, you may also suffer harm to your credit score, but because you are left with a fresh slate after the discharge, you do have a chance to rebuild better credit.
Filing For Bankruptcy: Will I Lose My House
One of the primary concerns of people considering bankruptcy is whether it will affect their home or vehicle ownership. There is a lot misinformation regarding how the process of filing for a Chapter 13 or Chapter 7 bankruptcy affects property ownership.
Would you be surprised to learn that filing a bankruptcy may actually help you to save your property or achieve better payments with your creditor? In addition to the detailed information below, we offer a free consultation to discuss your questions and unique circumstances in more detail. Call us today at 866-261-8282 to schedule a convenient time at any one of our Michigan offices: Detroit, Ann Arbor, Flint, Southfield, Warren or Dearborn.
Chapter 13 Bankruptcy and Home Ownership: Will I Lose My House In Bankruptcy?
A Chapter 13 bankruptcy is a debt consolidation plan designed to help you keep your home, assuming you have income to support making the payments. Filing the Chapter 13 plan will actually legally protect your home from foreclosure as long as the petition is filed with the court before the foreclosure sale occurs.
Other ways that the Chapter 13 program may help you keep your home or improve your payment terms:
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Homestead Exemption: Is Your Home Exempt In Bankruptcy
All of this may be moot if a significant portion of your home equity is not covered by a bankruptcy exemption. In Chapter 7 bankruptcy, most or all of your debts are discharged. In exchange, the trustee is entitled to sell your nonexempt property and use the proceeds to pay your unsecured creditor. That means that if your home has a significant amount of nonexempt equity, the trustee will sell it. To learn if your home has nonexempt equity, see Chapter 7 Homestead Exemption.
How To Apply For A Mortgage After Bankruptcy
The experts recommend working hard to bounce back from bankruptcy. That means improving and monitoring your credit before attempting to apply for a loan post-bankruptcy.
To apply for a mortgage after bankruptcy:
1. Check your three creditreports for free at AnnualCreditReport.com, disputing and resolving any errors you spot, and following credit-use best practices.
Make sure all debts that should be marked as included in your bankruptcy are reporting with zero balances on your credit reports, Morgan cautions.
Additionally, focus on making payments on time and as fully as possible. If youre struggling to rebuild your credit but are getting new credit applications declined, consider opening a secured credit card, which is generally easier to qualify for, Tayne says.
2. Avoid applying for and taking on too much new debt, and refrain from closing accounts, which can also lower your credit score because it can affect the length of your credit history and credit utilization.
3. If at all possible, look to save. Remember that the larger your down payment saved, the more favorable your interest rate will be.
4. Gather and organize all your bankruptcy discharge and schedule documents, recent pay stubs, two years of tax returns and other paperwork that lenders will want to see proof of.
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How Youre Listed On Debt Matters
Whether your non-filing spouse is listed on your debt matters. But how theyre listed also matters.
Take credit cards. Many credit cards offer three levels of users: joint account holders, supplementary accountholders, and authorized users. The terms of agreement explain the role and liability that each plays:
- Joint account holders are legally liable to repay the debt if the other account holder doesnt
- Supplementary accountholders may or may not be legally liable for the debt, depending on the specific companys terms of the agreement
- are not legally liable for debts on an account. If the legally responsible person files bankruptcy, it should not impact an authorized users credit score
Still, if youre worried about a bankruptcy improperly appearing on your spouses credit score if theyre an authorized user on your account, you may want to remove them before filing.
Do You Need To Reaffirm A Mortgage If It Is Exempt In Your Bankruptcy
Bankruptcy sucks. Even the most well-meaning and responsible of people can get into a bad situation — medical bills, loss of employment — and find themselves on the road to financial ruin. When it comes to mortgage debt, the basic rule of thumb is that lenders generally want you to stay in your home and continue to make payments. Although it’s certainly possible that you’ll lose your home in a bankruptcy proceeding, it’s not inevitable.
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How Do I Remove A Caveat
When you become bankrupt and own property, your trustee may either:
- lodge a caveat against the property to reflect their interest or
- transfer the land title into your trustee’s name.
Your trustee does this through the local state or territory land titles office.
Normally, to remove a caveat, the same party who lodges it needs to make a request. Alternatively, a court can order the removal. If you require further information about any caveats, you need to contact your trustee to discuss.
Personal Bankruptcy: A Real
Everyones financial situation is different, but it helps to hear about other peoples stories.
This real-life debt story about a couple who were dealing with a health crisis illustrates the relief that a debt relief program, like bankruptcy or a consumer proposal, can provide to people who are going through tough times.
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