One of the most common bankruptcy myths and fears about filing for bankruptcy relief is losing property, especially a home. For many people, their home is their most valuable asset. The thought of losing your house in bankruptcy is terrifying. However, what are you supposed to do if you cannot afford to pay your bills and creditors are threatening to file collection lawsuits?
Filing a Bankruptcy Case Stops Collection Efforts
When you file a bankruptcy petition, the automatic stay provisions of the Bankruptcy Code prevent creditors from taking any further action to collect a debt without bankruptcy court approval. In other words, your creditors cannot repossess or foreclose property without court approval. Creditors cannot file collection lawsuits or continue collections lawsuits after you file a Chapter 7 or Chapter 13 bankruptcy petition. They cannot continue to garnish your wages or harass you for payments once you are protected by the automatic stay.
The automatic stay is designed to give a debtor time to seek bankruptcy relief without fear creditors will continue debt collection efforts. In a Chapter 13 case, the automatic stay protects the debtor while the debtor seeks confirmation of a proposed Chapter 13 repayment plan. For Chapter 7 debtors, the automatic stay prevents creditors from seizing assets until the court reviews the debtor’s financial situation to determine if any assets can be liquidated to pay unsecured creditors.
How Does a Chapter 7 Case Impact My House?
Filing a Chapter 7 bankruptcy case stops a foreclosure action. However, the mortgage company can file a motion with the court for permission to continue a foreclosure action if you are behind on your mortgage payments. The Chapter 7 case gives you just a few months at best to catch up the mortgage payments to prevent the home from being sold at a foreclosure sale. For debtors who owe more on their mortgage than the home is worth, a Chapter 7 bankruptcy case is a way to get rid of the home without paying any money to the mortgage company for a deficiency judgment.
If you are current with your mortgage payments, a Chapter 7 case can get rid of unsecured debts so that creditors do not obtain personal judgments that could attach to your house. In most cases, debtors who are current with their mortgage payments keep their homes when filing a Chapter 7 case, if that is their choice. Bankruptcy exemptions typically protect the equity in a house from the court and your creditors.
The Parkville bankruptcy attorneys of Pinder Plotkin carefully review all assets, including your house, before you file a Chapter 7 case to determine if any assets may be at risk in a Chapter 7 case. If you are behind with your mortgage payments or the equity in your home exceeds the maximum bankruptcy exemptions, you can still get rid of debts by filing under Chapter 13.
How Does a Chapter 13 Case Impact My House?
The bankruptcy automatic stay provides the same protections when you file a Chapter 13 as it does when you file a Chapter 7 petition. However, if you are behind with your mortgage payments, a Chapter 13 bankruptcy case gives you a chance to keep your home. It also allows you to keep your home if you have equity in excess of the bankruptcy exemptions, which is usually rare.
In a Chapter 13 repayment plan, you can spread out the past due mortgage payments over several years. The Chapter 13 case gives you the time you need to catch up your mortgage payments instead of paying the entire past due balance in one large lump sum. In addition, to catching up your mortgage payments, you can also get rid of your unsecured debt for a portion of what you owe on each account. In many cases, you can also lower the payments on your car loan, and in some cases, pay less to the lender than you owe to release the lien on your vehicle.
When you complete your Chapter 13 bankruptcy plan, your mortgage payments are current, your vehicle is paid in full, and your unsecured debts are discharged. For many people, a Chapter 13 bankruptcy case is a way to save their home from foreclosure while getting out of debt.
Can I Get Rid of a Second Mortgage in Bankruptcy?
Another benefit of filing Chapter 13 is the opportunity to get rid of your second mortgage. If your home is worth less than you owe on your first mortgage, you might qualify to value the second mortgage at zero. If you are successful, you can get rid of the second mortgage for a fraction of what you owe to the lender.
Contact a Maryland Bankruptcy Attorney for More Information
If you are struggling with debts, you can get a fresh start by filing a Chapter 13 bankruptcy case. Ignoring your debts only makes matters worse. Reorganizing your debts in a Chapter 13 repayment plan gives you the chance to recover and rebuild after a financial crisis without creditors harassing you for payments you cannot afford or filing debt collection lawsuits for unpaid debts.
Contact Pinder Plotkin LLC by calling 410-661-9440 to schedule your free consultation with a Parkville Chapter 13 bankruptcy attorney.
The information provided in this website is provided for informational purposes only, and should not be construed as legal advice on any subject. The information contained in this blog is also subject to change and should not be relied upon. Contact the Pinder Plotkin Legal Team for a FREE consultation.