Your home is probably your most important asset and its value goes beyond just dollars and cents. The first question many of our clients ask us is whether the bankruptcy court will force them to sell or otherwise surrender their home. While this is a very real possibility, we do everything in our power to help you keep your home. Chapter 13 bankruptcy is often the best way to get out from under your creditors and keep your home. That said, you will probably need a Minnesota bankruptcy attorney to help you successfully navigate the process.
If Your Home is in Foreclosure
Foreclosure prompts a significant number of bankruptcy filings. The automatic stay goes into effect the moment you file your bankruptcy petition, prohibiting creditors from taking any action to collect their debts or repossess their property. This includes mortgage lenders, and bankruptcy is a guaranteed way to stop the foreclosure process.
If your home is in foreclosure, you should contact a Minnesota bankruptcy attorney right away. Timing is critical, and if you file too late, you may not be able to save your home.
The Chapter 13 Plan
The key feature of a Chapter 13 bankruptcy is the Chapter 13 plan, a court-approved payment plan administered by the trustee to repay the debts you owed prior to the date you filed for bankruptcy. The Chapter 13 plan can take up to five years to repay your creditors. A Minnesota bankruptcy attorney can help you structure your plan in a way that is affordable and complies with the requirements of the bankruptcy court.
In order to keep your home out of foreclosure, you will need to include your entire mortgage arrearage in your Chapter 13 plan. More importantly, you will need to ensure that you are making your payments required by the Chapter 13 plan. If you miss a single payment, your mortgage company is likely to seek permission from the bankruptcy court to resume foreclosure proceedings.
Post-Petition Mortgage Payments
In addition to making your Chapter 13 plan payments, it’s critical that you remain current on your mortgage payments that will come due after the date you file your bankruptcy (referred to as the “petition date”). Many people get confused and think that funding their Chapter 13 plan is all that they need to do. This is unfortunately not the case - you will need to make your monthly mortgage payment and your Chapter 13 plan payment. Failing to pay your post-petition mortgage payments will cause the mortgage lender to take steps to resume foreclosure proceedings.
Are There Other Claims Against the Title?
Up to this point, we have focused on your mortgage, but it’s important to consider whether or not there are other claims against the title. There may be other lienholders that can force a foreclosure even if you’re current on the mortgage. They are subject to the automatic stay, but also need to be paid through the Chapter 13 plan. If they carry post-petition payments, you will need to remain current on those as well. Here are some examples of common liens that may be against your home:
- Second or third mortgages
- Home equity lines of credit
- Tax liens
- Judgment liens
- Unpaid homeowners’ or condominium assessments
It’s not uncommon for people to have multiple claims against the title to their home in addition to their mortgage, so don’t be discouraged. A Minnesota bankruptcy attorney can help you formulate a plan to deal with these creditors and keep your home out of foreclosure.
Lien Stripping
After reviewing all of the claims against the title, you may realize that you owe more on the home than you could possibly sell it for. If you have no equity in your home (the resale value is less than what you owe), bankruptcy law allows debtors to strip off any lien other than your first mortgage that is not secured by equity. These claims are then treated as unsecured debt, which may be paid off at a significant discount with any remaining balance due being wiped out upon discharge. Once stripped, you are then relieved of an onerous financial burden and those creditors are no longer able to foreclose on the property.
Lien stripping is not an easy process. If you believe that you don’t have any equity in your home, a Minnesota bankruptcy attorney can help you get any unsecured liens stripped off.
Chapter 7 May Be an Option
When trying to save your home, you need to balance your financial needs against your desire to avoid foreclosure. Chapter 7 bankruptcy is a powerful tool for eliminating your debt and can provide a fresh start much more quickly than Chapter 13. Unfortunately, Chapter 7 typically requires that you surrender your home.
However, there are certain situations where you may be able to qualify for Chapter 7 bankruptcy and keep your home. An experienced Minnesota bankruptcy attorney can give you advice as to which option you qualify for and makes the most sense.
Want to Save Your Home? Contact Kain & Scott - Minnesota Bankruptcy Attorneys
With decades of experience, the bankruptcy attorneys at Kain & Scott understand how important your home is to you. We’ll walk you through the various options and do everything we can to keep you and your family in your home. Call us at 800-551-3292 or contact us online to schedule a free consultation and discuss how we can help you avoid foreclosure.
