Filing for bankruptcy is not something that consumers initially set out to do or are thinking about when purchasing a home. However if the economic circumstances of a borrower change, bankruptcy can be a tool that can be utilized to help you keep your home by making up payments you are behind, stop a foreclosure sale, or even allow you to qualify for a loan modification post bankruptcy filing.
Chapter 13 Bankruptcy Can Help You Keep Your Home
Chapter 13 bankruptcy is the most common type of bankruptcy to help you keep you home. This is because filing chapter 13 bankruptcy stops a foreclosure sale immediately at the time of filing through something called the automatic stay, chapter 13 bankruptcy allows consumers to make up payments that they are behind over a 5 year period, and even allows consumers to strip 2nd mortgages to be treated as unsecured debts if the first mortgage is worth more than the actual value of the home.
Sometime consumers use chapter 13 bankruptcy simply to stop a foreclosure sale in order to buy them some time to apply for a loan modification or sell the property by filing an emergency case filing which consists of filing a list of your creditors, the voluntary petition section of the bankruptcy petition, a statement of social security number and taking a credit counseling class. Your additional bankruptcy schedules which include listing all of your assets, debts, income and expenses would then be due a couple weeks later in order to keep the case and the automatic stay active. Filing an emergency bankruptcy case can keep a case active for 2 weeks to several months without making a plan payment depending on whether a consumer files all the required docs, attends 1 court meeting and goes through the motions of the chapter 13 bankruptcy process. If plan payments are made and the debtor is within the income limits of filing chapter 13 bankruptcy, a case can last 3-5 years and can be voluntarily dismissed as any time.
If a consumers main goal is to make up the payments that they are behind on a mortgage, they can do so through chapter 13 if their household income allows them to make payments that consist of the original loan payments as well as the payments you are behind divided by 60 months. There are also other factors involved such as other debts owed by a consumer or assets that are owned which may affect a chapter 13 plan payment. As long as your case is active, the automatic stay will remain in affect to protect your property as long as the bank has not obtained relief from the automatic stay and as long as you are not a serial filer in bankruptcy.
Chapter 7 Bankruptcy Can Help you Keep Your Home
A chapter 7 bankruptcy is usually not the recommended method to help you keep your home, however there may be some benefit to filing chapter 7 bankruptcy if you owe other unsecured debts in which you can receive a discharge from and your home does not have too much equity. In general, the filing of a chapter 7 bankruptcy case will stop a foreclosure sale in most cases due to the implementation of the automatic stay. With that said, a chapter 7 is different from a chapter 13 bankruptcy in that the bankruptcy will discharge most unsecured debts within 90 days of filing. The catch is that a trustee is appointed to your case whose has a job to liquidate non exempt assets for the benefit of your creditors. When you file for bankruptcy you are allowed to keep a certain amount of assets based on rules called exemptions.
In Washington you can choose to use the state exemptions or federal exemptions. The Washington state exemptions allow for a debtor to protect up to $125,000 of equity in a primary residence. This means that if your home may have more than $125,000 in equity, then chapter 7 bankruptcy would not be recommended unless you want to risk losing your home. Additionally, if you are thinking about moving soon, the exemption also specifies that any funds received from the sale of a home must be reinvested in a primary residence within 1 year of selling a home. If you are current on your mortgage payments and below the exemption limit and don’t have any other non exempt assets, then your case may be wrapped up in 90 days. If however, you have assets that need to be administered your case may be left open by a trustee until the assets can be administered. You would still receive a discharge of your other debts in 90 days in most cases, but a trustee may wait and see if you will qualify for a loan modification or not to determine if there will be an asset that needs to be administered.
Bankruptcy Can Help You Keep Your Home by Helping You Obtain a Loan Modification
Most debtors who have fallen behind on their mortgage payments will receive several notices from their lender, informing them that they may apply for a loan modification in order to help the debtor better afford their mortgage payment. This is called the notice of pre-foreclosure options. The government’s HAMP program came to an end at the end of 2016, but most lenders have their own in house modification programs that borrowers can apply for. Every bank may have difference guidelines when looking to see if you qualify for a loan modification, however all bank will be looking at a borrowers debt to income ratio to determine whether a borrower could afford the loan. This is why bankruptcy can help you keep your home by helping you obtain a loan modification. By filing chapter 7 bankruptcy you can eliminate debt which could improve your debt to income ratio and therefore help you obtain a loan modification.
Additionally, most lenders will review loan modification applications while a borrower is in a chapter 13 repayment plan. If a modification is approved during a chapter 13 repayment plan, then court permission would have to be obtained to move forward with the modification. Court approval is generally not unreasonably withheld. Therefore if a modification is approved and is the only reason the consumer filed bankruptcy in the first place, the modification can add the arrears on to the end of the loan, and then a debtor can voluntarily dismiss their chapter 13 case. This is different from a chapter 7 bankruptcy case where a debtor cannot voluntarily dismiss a case.
If you live in Washington State and are looking for a lawyer to help you keep your home, give Symmes Law Group a call at 206-682-7975 to speak to a bankruptcy attorney and learn about your options.