What happens to my home if I file bankruptcy?

Will I Lose My Home if I File Bankruptcy?

 

You will probably not lose your home because of bankruptcy. The most common way that a person loses their home after bankruptcy is because they cannot afford to make the monthly
mortgage payments even after eliminating their other debts.

Your home, depending on how much equity you have in it (i.e. current market value – total mortgage
balance), may or may not be a property of the estate for which a trustee in bankruptcy will have an economic incentive to liquidate.

When a homeowner is “underwater” on her mortgage (i.e., you owe more on your mortgage than what the house is worth), a trustee in bankruptcy has no economic incentive to liquidate the asset.

Even if you have some equity in your home, you may be able to retain your home by claiming a homestead exemption.
For example, if you are filing in California in 2011, and you are 65 years of age or older, you may claim up to $175,000 in homestead exemption. (Note: The exact amount of homestead exemption changes periodically.)

In the event that a trustee determines that there is administrable equity in your home, the trustee is
likely to offer you an opportunity to purchase the property back from the bankruptcy estate for the amount that the estate would have realized had the trustee in fact sold the property.

During periods of rising real estate values, trustees in some cases may independently value properties
by having a real estate broker run comparable sales and listings and conduct on-site valuation. If you are considering bankruptcy at a time when the value of your real property is rising, you might want to hire an appraiser or a real estate broker to get a strong handle on the value of your home before you file
your bankruptcy.

 

 

The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice.  You should seek advice from a bankruptcy attorney for your specific situation.





Will Filing Bankruptcy Stop a Foreclosure?

 

Yes. When you file bankruptcy, a federal injunction known as “automatic stay” goes into effect
immediately which stays all collection attempts from the creditors, including a foreclosure.

But in many cases, the relief is only temporary, unless you address the underlying issue: i.e., you
reinstate the loan by curing the default or doing a loan modification.

A chapter 13 bankruptcy allows you to catch up on delinquent mortgage payments over a three-to
five-year period, paying out the delinquent amount in small additional payments. You must also make all your mortgage payments that come due after the filing of your bankruptcy case.

 

 

The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice.  You should seek advice from a bankruptcy attorney for your specific situation.



Can Bankruptcy Lower My Monthly Mortgage Payments?

 

Under the current bankruptcy law, you cannot force a bank to modify the terms of your promissory note.

However, there are some ways in which bankruptcy can help you keep your home. Filing bankruptcy imposes an “automatic stay,” which causes all collection activities, including foreclosures, to stop immediately. Filing bankruptcy can also give you some time to save money to catch up with your mortgage arrears. Lastly, bankruptcy gives you the ability to force your mortgage company to receive the past due
payments over a period of up to 5 years (by filing under Chapter 13).

Another way bankruptcy may help you keep your home is if you have a second mortgage loan or a home equity loan that is wholly unsecured, i.e., the value of your home is less than or equal to the mortgage loan balance for your first loan. If this is the case, you may be able to lien strip and wipe out the second mortgage in a Chapter 13 bankruptcy. This will allow you to focus on your first mortgage payments after
the lien strip and help increase your chances of keeping the home.

 

 

The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice.  You should seek advice from a bankruptcy attorney for your specific situation.