Considering Bankruptcy? Learn How Declaring Bankruptcy Affects Your Home

Posted on September 22, 2019. Filed under: First Time Buyer help |

The Basics

If you’re feeling overwhelmed by debt and feel you can’t keep up with your mortgage payments, you aren’t alone. According to Debt.Org, the total U.S. consumer debt is reaching $13.51 trillion (this includes mortgages). Many homeowners feel the pressure to sell their home to help eliminate their debt. For many homeowners, bankruptcy is the last option however filing bankruptcy can help alleviate some of your debt and potentially allow you to start over financially.

Filing bankruptcy can help you gain a fresh start by liquidating assets to pay debt or by creating a repayment plan. While bankruptcy is not an easy-fix to eliminate debt, nor is it a decision to be taken lightly, bankruptcy might be the best way for you to get back on your feet while keeping your house. Declaring bankruptcy can affect your mortgage in various ways. It is important to consider the risks and benefits before you file bankruptcy. 

Bankruptcy Prevents Foreclosure

As debt accumulates, you might not be able to keep up with your mortgage payments as other debts are taking priority. Lenders may threaten foreclosure proceedings against you, putting your home at risk. Foreclosure allows a lender to take your home to settle the remaining balance of your mortgage. Filing bankruptcy can stop a foreclosure proceeding.

Once you declare bankruptcy, the court imposes as an automatic stay to all of your creditors. The automatic stay imposes a “freeze” preventing your creditors from taking legal action against you to collect debt during your bankruptcy term. As your home approaches the final stages of foreclosure, filing bankruptcy will prevent this process from continuing.

Chapter 7 vs Chapter 13

When filing bankruptcy for personal debt, you have the option to file Chapter 13 or Chapter 7. In a Chapter 13 bankruptcy, you keep your assets while working on a repayment plan (typically 3 to 5 years). Chapter 13 bankruptcy allows individuals with a regular income to develop a plan to repay their debts. In a Chapter 7 bankruptcy, the appointed bankruptcy trustee cancels many of your debts by selling (liquidating) some of your property to repay your credits.  If you have assets not protected by an exemption, the appointed trustee may sell the assets to repay the creditors. Click here to learn more about which bankruptcy chapter could be right for you. 

Reaffirming Mortgage Debt

If you feel you could pay your mortgage payments on time if your other debts were no longer piling up, the court may grant you the option to reaffirm your mortgage through bankruptcy. While in bankruptcy, the court may consider granting you the option to reaffirm your mortgage through the bankruptcy process. During the affirmation process, you can reach an agreement with the mortgage lender to continue making making mortgage payments on your home and the court then agrees not to include your mortgage in the bankruptcy proceedings. 

Here To Help

It is important to consider the benefits of Bankruptcy when bills start to get too far behind or when traumatic financial events occur. Filing bankruptcy gives you an opportunity to save your home while gaining a fresh start. The Law Offices of Kaufman and Kaufman help people file for bankruptcy relief under the Bankruptcy Code. Contact Leah Kaufman today with your Bankruptcy questions.

Leah Kaufman
Law Offices of Kaufman and Kaufman
Phone: 714-550-9205

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