Bankruptcy can save and protect and provide many benefits for your home in many different ways. One of these may be just what you need. Or you may use them in combination.
We have 15 distinct ways that bankruptcy can either save your home now or protect it soon. Here are the first seven, the remaining eight we’ll give you next time:
1. Benefits for your home #1: Home equity protection:
You can almost always protect any equity you have in your home through bankruptcy. You can do so through Chapter 7 “straight bankruptcy” if the equity is no more than your applicable homestead exemption. (This is based on state or federal law, depending on your state.) Even if you have no equity in your home now, bankruptcy can protect equity that you build up going forward. See Section 522(b)(2), (b)(3), and (d)(1) of the U.S. Bankruptcy Code.
2.Benefits for your home #2: Home equity larger than homestead exemption:
If your equity exceeds your applicable exemption, then a Chapter 13 “adjustment of debts” can usually protect it better than Chapter 7. That’s because it gives more time and a better way to preserve that equity while under bankruptcy protection. See Section 1325(a)(4) of the Bankruptcy Code.
3. Benefits for your home #3: Free up cash flow for your mortgage payments:
If you’re not behind on your mortgage, write off your other debts to have money for your monthly mortgage payments. Talk with your bankruptcy lawyer to find out which debts will likely go away, and which may not. He or she will also help you create a post-bankruptcy budget. Hopefully, it will show that you can afford the mortgage after getting rid of the other debts. See Sections 727 and 1328 of the Bankruptcy Code.
4. Benefits for your home #4: Catch up with a forbearance agreement:
If you’re not far behind on your mortgage, write off your other debts through Chapter 7. Then catch up on your missed mortgage payments through a forbearance agreement with your mortgage holder. Instead of paying other debts, put your money into saving your home. A forbearance agreement gives you a specific amount of time to get current, usually through designated extra payments.
5. Benefits for your home #5: More time to catch up:
Chapter 13 gives you 3 to 5 years to catch up on your mortgage. This time is generally much longer than you’d get through a forbearance agreement. With the catch-up payments spread out longer, they’re much smaller, and so more affordable. Throughout those catch-up years, your mortgage lender can’t take collection or foreclosure action as long as you follow the agreed payment plan. See Sections 1322(b)(2) and 362(a)(4) and (5) of the Bankruptcy Code.
6. Benefits for your home #6: Prevent property tax foreclosure:
Payback property taxes through a Chapter 13 payment plan. Again, you have 3 to 5 years to catch up, and protection from tax foreclosure in the meantime. Plus your budget will include money for future property taxes so you won’t need to worry about that going forward.
7. Benefits for your home #7: “Strip” a junior mortgage.
“Strip” a second or third mortgage from your home’s title, thus significantly reducing your overall mortgage debt. If you meet the required conditions, you can stop paying the second and third mortgage payments. You’ll likely end up paying none or only a small part of a “stripped” mortgage balance. As a result, the total debt on your home will get closer to the home’s value. You’d be able to create future equity faster as the home’s value increases in the future.
For more information contact your local Kalispell bankruptcy attorney.