When debt becomes too much to manage, most individuals result in filing for bankruptcy. Declaring bankruptcy helps get rid of most of your debts and make a payment plan for the remaining debts. However, a bankruptcy declaration can cause you to lose some of your most valuable assets, including your home. Whether a bankruptcy makes sense when you own a home will depend on whether you want to save your home or you want to walk away with lesser debts. If you are going to file for bankruptcy and protect your home, it is essential to have legal representation. At Los Angeles Bankruptcy Attorney, we will guide you through the choices you have for bankruptcy so you can make a decision that will protect your home. Our group of competent attorneys serve clients from Los Angeles, CA, to ensure your interests are represented during bankruptcy.
Home Retention in Chapter 7 Bankruptcy
If you are up to date with your mortgage payments, you can be able to retain your home in Chapter 7 bankruptcy. However, if your equity can be able to pay the creditors after liquidation, you can lose the house. If you do not have home equity, you can be able to protect your home using the homestead exemption. Since there wouldn’t be any money to pay your creditors, the bankruptcy trustee will sell your home.
However, this will not automatically mean that you will retain the home. If before and after Chapter 7 bankruptcy you are not current with mortgage payments, you may still lose your home in a foreclosure. It is essential to understand the following information to determine whether the bankruptcy trustee will sell your home:
- Property Identification. You can exempt your equity I some of the properties after filing for bankruptcy. The homestead exemption can help you protect your permanent residential home. On most occasions, the property you exempt from liquidation must be your primary residence.
- The value of your Homestead. A homestead exemption in California will protect the equity of your home from creditors during bankruptcy. The cost of the home you tend to keep is a crucial factor when it comes to chapter 7 bankruptcy. You can exempt up to $75,000 through the homestead exemption. However, if you are mentally disabled or are above the age of 55 years, you can be able to exempt up to $175,000.To claim a full value homestead exemption, you must have owned the property for a minimum of 1,215 days before the date of the bankruptcy filing.
- Value of unprotected home equity. If you want to retain your home after chapter 7 bankruptcy, you need to know whether you have enough unprotected equity to trigger a sale. This will be done by establishing the market value of your home and subtracting the exemption amount, the trustee commission as well as the amount owed to mortgage and lines. If the amount you get after this us negative, your bankruptcy trustee will not sell your home. If the end is positive, the three are enough to resell and pay the unsecured debts.
Chapter 7 bankruptcy may not help you keep your home but can temporarily protect you in foreclosure.
Chapter 7 Bankruptcy and Home Foreclosure
The ability of chapter 7 bankruptcy to save your home from foreclosure is limited. However, this type of bankruptcy can be able to protect your home from foreclosure temporarily. Liquidation bankruptcy allows you to get rid of all your debts except the non-dischargeable ones. In return, most of your properties will be liquidated to pay your creditors. After filing for bankruptcy, your creditors cannot contact you to demand the payment for what you owe. Filing for bankruptcy will wipe out what you owe a mortgage. However, the mortgage lien will not be eliminated.
If you were behind with your mortgage payments at the time of bankruptcy, your lender could push through with the foreclosure. For individuals who are up to date with the mortgage payments, the court may allow you to retain ownership of your home and continue to pay the mortgage. After you receive your bankruptcy discharge, you will no longer be personally liable for the mortgage.
This is because it is difficult to catch up on missed mortgage payments with a liquidation. The court will rarely ask your creditors to allow a payment plan. Also, lien stripping, which is the ability to eliminate the mortgage lien entirely is not available for this type of bankruptcy. Most courts will only allow lien stripping for a Chapter 13 bankruptcy. Moreover, chapter 7 bankruptcy may not be the best option to retain a home since there aren’t any laws that compel lenders to make loan modifications.
Even though chapter 7 bankruptcy is not the best method of saving your home from foreclosure, there are ways it can help a homeowner.
- Temporarily put a Hold on Foreclosure.
Through the automatic stay, filing a chapter 7 bankruptcy will put a hold on foreclosure proceedings of your home. Once you file for bankruptcy, an automatic stay prohibits your creditors from the efforts of debt collection. This will include phone calls, emails, or even trying to repossess the property. Also, all activities regarding foreclosure will cease. This will allow you to retain your property while the automatic stay lasts. This allows you time to find a strategy to protect yourself from foreclosure permanently.
It is essential to understand that if you are not up to date with your mortgage payments, your creditor can file a motion to lift the automatic stay. When you register for bankruptcy, ensure you send a copy of the bankruptcy petition to your bank. This will help keep the creditors off your back comfortably.
- It is Easier to Get Loan Modifications on a Chapter 7 Bankruptcy
When evaluating the terms for loan modifications, most mortgage lenders will consider the debt to income ratio. Filing for bankruptcy can help you lower this ratio. Eliminating some of your debts gives you more disposable income and increases your chances of getting a loan modification from your lender.
If you are far behind your mortgage payments, you can negotiate with your creditors to deal with a shortfall through a mortgage workout. If your lender agrees to settle the loan modification plan, it is essential to complete modification before you file for bankruptcy. This will help avoid disruption of the negotiations by the bankruptcy proceeding.
Effects of Chapter 13 Bankruptcy on Home Mortgages
Saving Your Home
Chapter 13 bankruptcy is suitable for individuals with high incomes Chapter 13. You will be required to make a repay and are hoping to protect valuable properties from liquidation. However, you must earn a certain amount of income and meet the debt limits to qualify for this type of bankruptcy. In chapter 13, you will be required to make a repayment plan with your creditors.
The plan often lasts between three to five years. This allows you the time to reorganize your financial affairs and pay the debts you owe. With this plan, you are expected to pay the priority debts and secured debts. Mortgage for your home is one of the secured debts you need to prioritize so you can retain your house after bankruptcy.
Filing Chapter 13 bankruptcy allows you to prevent or delay the foreclosure of your home. Also, you can have an opportunity to eliminate subsequent mortgages. If you are running behind with the mortgage payments, this will be the best bankruptcy option to retain your home. However, you will be required to demonstrate that you have sufficient income to:
- Catch up with the mortgage within the stipulated time. A repayment plan for Chapter 13 bankruptcy is often three to five years.
- You can afford to continue making your mortgage payments as stipulated in the payment plan. To file for Chapter 13 bankruptcy, you are required to have a certain amount of income. The steady income is proof that you will manage to continue making your payments as expected.
- To compensate your creditors for the non-exempt debts. To retain your home in chapter 13 bankruptcy, you need to have enough money to pay the creditors whose debts you cannot protect with an exemption.
- Pay for other requirements of chapter 13 bankruptcy. To keep your home, you need to have enough income to pay for other conditions of chapter 13 bankruptcy.
If you want to keep your home, you need to stay current on your mortgage payments. In most cases, you will pay your creditors directly. However, your bankruptcy trustee may require you to make the payments through Chapter 13. It is crucial to understand that your trustee will keep a certain percentage of all payments you make through the plan. If you are behind on the mortgage and want to retain your home after bankruptcy, chapter 13 will allow you to continue paying your mortgage arrears and retaining ownership of your home after bankruptcy is everyone’s wish. Therefore, it is vital to pursue this course with legal guidance from a knowledgeable bankruptcy attorney.
Stripping a Second Mortgage in Bankruptcy
Through a process known as lien stripping, you can get rid of a second mortgage to your home. However, most homeowners do not qualify for lien stripping. If the value of your home has declined substantially and you have a second loan on the home, the lien can be removed and the second mortgage discharged. The cost of your home must be low enough for home equity to be insufficient to remove the lien ad discharge your second mortgage. To prove that your equity is not enough to pay the debts, you can acquire a home appraisal that shows a fair market value of your home. If what remains after paying for the first mortgage cannot pay a subsequent mortgage, your lien can be stripped.
To strip a lien from your home, the court may require you to file a motion of lien stripping. You will provide proof that you cannot pay the second mortgage in a hearing. If the court is convinced that you can still pay for the second mortgage, your motion to strip the lie will be denied.
Exempting Home Ownership Equity in Chapter 13 Bankruptcy
Although you will retain your home in Chapter 13akruptcy, you will still have to pay your creditors for debts you cannot exempt. Regardless of the amount of property equity you have, you will be allowed to keep your property after chapter 13 bankruptcy. Moreover, you will have to make payments through a repayment plan which is greatly influenced by the amount of non-exempt property you possess.
The higher the equity you have in your home, the higher the amount you will pay with the bankruptcy repayment plan. Also, if you are behind with the mortgage payments, you will have to include your arrears in the plan. This is a condition of keeping your home in the reorganization bankruptcy. You should plan to pay the priority debts first as part of the plan.
To retain your home after bankruptcy, you can exempt your equity through the homestead exemption. After filing for bankruptcy, the homestead exemption will protect your investment in your primary residential home. In chapter 7 bankruptcy, keeping your home will be determined by the amount of equity you can exempt.
Delaying a Foreclosure
After a Chapter 13 bankruptcy application, all proceedings for foreclosure will be stopped. The foreclosure will not push through until the court has approved your payment plan. When purchasing a home, you will agree with your lender that they can resell the home if you are not able to pay mortgage arrears. However, the right procedure has to be followed so the foreclosure can take place. You will be allowed some time to catch up with the payments, and if you cannot make a plan, the foreclosure pushes through.
If you file for chapter 13 bankruptcy in the middle of a foreclosure, the proceedings will be put on hold until you make a repayment plan. This allows you to retain ownership of your home while you reorganize your finances. There are two exceptions to the automatic stay which protect the creditor’s right of foreclosure as per contract agreement:
- If you have two or more bankruptcies that were dismissed I the pad toe year, the automatic stay will not go into effect, and the foreclosure will push through. In this case, you lose your home to foreclosure rather than bankruptcy.
- If you had a single bankruptcy case dismissed within the last year, the proceedings would only stop for thirty days.
However, these repeat exceptions will not be imposed on the type of bankruptcy on the record is not the same as the one you are currently filing. You will be expected to prove that the bankruptcies you had filed previously were not done in bad faith to successfully file this motion. Moreover, you will need to be up to date with the mortgage payments for the automatic stay to be active.
When you file for an automatic stay, your lender can file a counter-motion to lift the stay. You can reply to oppose this motion, and the court will hold a hearing for both sides before determining the fate of the automatic stay. If the automatic stay is lifted, the foreclosure can continue unless otherwise stated by a bankruptcy court.
Mortgage Modification in Rearrangement Bankruptcy
If your debts are higher than the value of your home, filing for Chapter 13 bankruptcy may help you make modifications to debts secured using the home. The remaining debt will be treated as a priority, and you will not be required to pay it urgently. Most mortgage modifications will be allowed if:
- The loan was meant for the construction of other properties rather than your primary residential home
- Your home does not entirely secure the loan
- The mortgage was meant for a mobile home considered as personal property
- The mortgage is or a multi-unit building such as a rental building.
If your loan is crammed down, you will have to pay the cram down loan through your repayment plan for chapter 13 bankruptcy. If you want to keep your home after filing for bankruptcy, it is essential to seek guidance from a bankruptcy attorney.
Find a Competent Los Angeles Bankruptcy Attorney near Me
Fighting for your financial future and making the right decisions can be quite challenging. Bankruptcy can be a last resort, but when it is the only option, it is essential to go through it to get your finances in order legally. It will take a lot of legal guidance and knowledge to navigate bankruptcy successfully. Having to file for bankruptcy after debt accumulation is hard enough. You do not want to lose your home in the process. If you are going to file for bankruptcy and keep your home, consider seeking the legal representation of an attorney from the Los Angeles Bankruptcy Attorney. Contact us at 424-285-5525 today from any location in Los Angeles, California, and allow us to guide you.