Preservation of your primary residence is an important thing for your family. First, under either chapter 7 or chapter 13, you will be able to keep your home only if you continue to make the required ongoing monthly payments on your mortgage. If you have fallen behind, under Chapter 7 you must make arrangements acceptable to your mortgage lender to catch up on any delinquent payments, and it is up to the mortgage company to decide whether to work with you. Under chapter 13, you may be able to include any delinquent payments in your payment plan and pay them off over a specified period of time while maintaining ongoing monthly mortgage payments. To carry out this, you must have sufficient cash flow to cover your regular payments to the chapter 13 bankruptcy trustee as well as your regular ongoing mortgage payments. Please keep in mind that you must qualify income wise in order to file Chapter 13 bankruptcy.
A sincere willingness to make monthly payments on your mortgage, however, will not ensure that you can keep your home. Though making such payments is necessary, it still may not be enough.
Do you own the property with your spouse?
Another reason determining whether you will keep your home is whether you own the property with your spouse. Let us say have plenty of debt, but your has little or none. Many states will completely block or significantly limit the ability of unsecured creditors to reach property that you own together with your nonfiling spouse.
Even if you are willing to continue making the required monthly payments, you could still lose your home if you file for bankruptcy under chapter 7. With a chapter 7 fling, if you have no equity in your home and you have not made your payments (you have a default status), the creditor can foreclose on your home during or after bankruptcy, even if your unsecured debts are discharged. The chapter 7 discharge does not release the lien. Of course, a lender can also foreclose on your home in these circumstances if you do file for bankruptcy, filing for bankruptcy will only delay the inevitable by a couple of months. If you have equity in your home, your unsecured creditors may also have an interest in your home, especially if it is worth more than the total of your mortgage debt and any applicable homestead exemption. In that case, the bankruptcy trustee make take possession of your home and sell it for the benefit of your unsecured creditors. In other words, it may become part of the assets collected for distribution by the trustee.
Whether the trustee will actually take your home ?
It depends on two basic factors: how much equity you have in the home, and how much of the home’s value is sheltered by exemption law from creditors.
What is Homestead’s Exemption?
It is the amount of your home’s value that the law puts out of the reach of your unsecured creditors. In general, the lower your exemption and the greater the equity you have in your home, the stronger the chance that the trustee will take your home. If there is not enough equity (has to be very significant), the trustee would avoid taking your property. If the house is taken over by the trustee and sold for the benefit of the bankruptcy estate, there are certain prohibitive costs associated with such take over. This prohibitive cost may stop trustee altogether to take over your property.
Can you stop the foreclosure by filing bankruptcy?
A bankruptcy may stop the foreclosure, at least temporarily, and assuming this is not your third bankruptcy case within a year. Upon the filing of bankruptcy, an automatic stay is kicked in. In chapter 7 cases, an automatic stay can just prolong the foreclosure process and gives you a satisfactory time period to arrive some kind of arrangement with your lender. When the discharge is granted, it is likely that the holder of the mortgage will again try to foreclose.
In chapter 13 cases, the debtor-homeowner might be able to cure the defaults on mortgage under the plan and keep up ongoing payments. If so, the chapter 13 debtor may be able to save the home from foreclosure. For this reasons, Chapter 13 has been referred to as “save the home” chapter. Chapter 13 offers broader and more effective ways of dealing with the possibility of foreclosure than does chapter 7. Again, bankruptcy can stop the foreclosure process in the short term. In order to retain your home in the long term, however, you need to be able to cure the arrears due to you mortgage company over a three to five-year-period, that is, make up in full and missed payments. Bankruptcy may also be an effective way to buy some time in which to sell your home before foreclosure takes place.