When you realize that your financial situation has reached a precarious point, you may have decided that filing for bankruptcy would provide you with a fresh start. The problem is that one or more people told you that you could lose your home if you file, which caused you to hesitate.
Instead, you continue to dread your phone ringing, hate to look in your mailbox and suffer through the stress and anxiety that comes with being delinquent on debt payments. It may provide you some relief to know that you may be able to keep your home when you file for bankruptcy. Not everyone who files for bankruptcy loses a home. Three primary factors influence whether you may keep our home when you file for bankruptcy protection.
Do you have equity in your home?
Subtracting the market value of your home from the amount remaining on your mortgage loan, gives you the amount of equity you have in your house. A Chapter 7 trustee looks at whether your home falls into an exemption after determining this amount. Most people have little to no equity in their homes when filing bankruptcy. If this is the case for you, keeping your home may happen.
You would need to reaffirm your debt with your mortgage lender. In many cases, the lender would rather have your money than your home, so reaffirmation remains in the realm of possibility. However, if at some point after the bankruptcy you fall behind again, you could face foreclosure.
Can you afford your mortgage loan payments?
Obviously, if you contemplate filing bankruptcy, you probably either can't or struggle to make your payments. The court assesses whether you can do so post-discharge. In many cases, the discharge of certain debts frees up enough monthly income to afford the payments once again.
If the answer to the question is no, then your lender may file a foreclosure action. In this case, bankruptcy may allow you to forfeit your home without any further responsibility for the mortgage loan. This may give you an opportunity to start over without worrying with large payments.
What type of bankruptcy will you file?
Most consumers file either Chapter 7 or Chapter 13 bankruptcy. A variety of differences separate the two types, but the exemptions are what may make the difference here. In a Chapter 7 filing, the exemptions are often stricter, and any property not falling into an exemption may be sold to pay creditors. In a Chapter 13 bankruptcy, the exemptions are not as strict, which allows many people to retain their homes after discharge.
This is not the only factor to consider in deciding which chapter to file. In addition, you will take the means test, which may make the decision for you. In order to know which chapter will serve your interests best, you may benefit from scheduling a consultation with an Iowa bankruptcy attorney who can review your current circumstances, help you make the best decision possible and guide you through the process.