Does Chapter 7 Bankruptcy Protect Your Home?
The state of the housing market in the U.S. means that millions of Americans are trying to protect their homes from foreclosure or otherwise salvage the investment they made in their mortgage. One question many people have is whether Chapter 7 personal bankruptcy can protect a home from foreclosure.
The answer is complex and depends on state laws and the specifics of your situation. Here is some general information about Chapter 7 bankruptcy and home mortgages.
Mortgages in Chapter 7 Bankruptcy
Here's a look at what Chapter 7 bankruptcy is designed to do for a filer struggling to save a home.
- It MAY protect your home and equity: Each state provides protections from creditors called exemptions, that may include equity up to a certain value, or the full value of your home. Where you live will have a big influence on this factor.
- It MAY temporarily halt foreclosure action: Thanks to the automatic stay, filing for Chapter 7 can stop all collection actions against a filer. Foreclosure is considered a collection action. A filer may be able to remain in her home for the duration of the Chapter 7 case (usually four to six months), even if he or she is unable to keep up with mortgage payments.
- It MAY offer breathing space: Chapter 7 is designed to eliminate unsecured debts like credit cards and medical bills. By wiping out these financial obligations, homeowners may be able to reaffirm their mortgage agreement and find room in their monthly finances to keep up with the mortgage payments.
- It CANNOT modify the terms of a mortgage loan: The bankruptcy court has no authority to modify the terms of a mortgage agreement, whether the filer seeks protection under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. This means that, if a filer's mortgage is what lead to filing for Chapter 7, it is unlikely that he will be able to afford the mortgage after filing.
Chapter 13 Bankruptcy and Foreclosure
Filers who have a steady source of income and want to save their home from foreclosure may be interested in filing under Chapter 13 of the U.S. Bankruptcy Code. Unlike Chapter 7, Chapter 13 allows filers to make repayments over a period of three to five years in order to catch up on past-due debts.
Some filers may be able to catch up on their mortgages and thus protect their homes from foreclosure in Chapter 13.
If you'd like specific information about your mortgage and bankruptcy options, you can arrange a free consultation with an attorney in your area. Simply fill out the case review form below to get started now.