Perhaps the most common and important question I get from people: “is my home protected in a bankruptcy or do I have to give it up?” The short answer to the question is a qualified YES.
However, the most important thing to keep in mind is that while a Chapter 7 or Chapter 13 bankruptcy discharges your personal liability for debts, if the debt is secured to real estate or property, than the secured debt must be paid or the lender can collect against the collateral.
A bankruptcy itself does not change any of the terms of your mortgage, as the mortgage is attached to the land and structure of your home. The bankruptcy will not change your interest rate, when the payments are due, or eliminate the need to pay any lump-sum (commonly referred to as a Balloon Payment) under the mortgage contract. This means that you need to continue to pay the normal mortgage(s), property taxes, and insurance, or else the mortgage holder may foreclose after the bankruptcy is complete.
If you are facing a foreclosure, and you have regular income, then it is common practice to file for Chapter 13 relief and a reorganization of your debts. In a Chapter 13 we can take missed payments, either on the mortgage(s) or related home owners association (HOA) fees, and pay them off over a period from 36 months to 60 months. However, because the mortgage is secured, you will still need to make the normal payments moving forward. We cannot reduce the contractual payments or eliminate a balloon payment through bankruptcy.
One of the reasons bankruptcy is called a “fresh start” is that you get to pick and choose the payments you desire to move forward with and reject the contractual payments you do not wish to pay. Home mortgage payments are almost always something you want to continue to pay, and as long as you make the normal payments you have nothing to worry about in a bankruptcy. Only if you have more than $420,000 worth of equity in your home, can it be an issue to keep your home in bankruptcy.
At Kain and Scott, our attorneys are well-versed on strategies to keep what is most important to you, and this certainly includes your home for your family.
When ready, reach out to Kain & Scott at www.kainscott.com.
