Can I Declare Bankruptcy and Still Keep My House?
If you are behind on your mortgage and are worried about foreclosure, you have to consider all your options. Depending on your circumstances, either Chapter 7 or Chapter 13 bankruptcy might allow you to shed crushing debt and still hold onto your home.
If you have piles of dischargeable debt preventing you from meeting your mortgage obligations, Chapter 7 bankruptcy might be the appropriate course of action. You can keep your home in Chapter 7 bankruptcy if you have no equity or low enough equity to use the homestead exemption. However, too much equity in your home could trigger a sale by the bankruptcy trustee to free that equity to repay your other creditors. Moreover, Chapter 7 will not discharge your mortgage arrearage (the accumulated unpaid payments), so it will not permanently halt foreclosure. You also have to qualify for Chapter 7 under the means test, by demonstrating that your household income is beneath the state median income of a similar-sized household. Many homeowners find that their income is too high to qualify.
More homeowners are able to save their home through a Chapter 13 filing. Chapter 13 bankruptcy is a longer process, during which the petitioner pays back a portion of the debt. At the end of the repayment period, the remaining debt is discharged. There is no means test to qualify, but to keep your home you have to be making enough money to keep up with current mortgage payments. Your arrearage is added to your other outstanding debts. You work with the court to develop a repayment plan based on your income, and you must commit to the plan for three to five years.
Chapter 13 is especially helpful when a homeowner has a second or third mortgage. If your home has dropped in value, you may no longer have enough equity to cover the additional mortgages. The bankruptcy court then treats those mortgages as unsecured debt, which gets the lowest priority of repayment. It is possible your repayment plan will only require you to repay a fraction of those debts.
Keeping your home provides your family with a sense of stability and security. It allows your children to avoid a disruptive move and remain in the neighborhood and school they know. At the Law Offices of James C. Zimmermann, we approach every potential bankruptcy on a case-by-case basis and help you make informed decisions based on the best information available. To schedule a free initial consultation, call 973-764-1633 or contact us online.