The automatic stay is a powerful benefit of filing a bankruptcy case. As soon as the stay is effective, your creditors are prohibited from taking further collection actions against you.
As a result, a bankruptcy filing can be helpful when you are facing financial emergencies, including:
One of the primary concerns debtors have when they file a Chapter 7 or Chapter 13 case is what will happen to their home. Bankruptcy law provides a debtor with a variety of exemptions which remove certain assets from being included in the bankruptcy estate. Your home typically falls within the exemptions and filing a bankruptcy may even positively impact your real property holdings.
When you own a home that is not worth as much as you owe on your mortgage, or you have multiple mortgages on it, you may be allowed to strip or remove a lien. In a Chapter 13 case, a debtor may be able to prove that an underwater home does not have sufficient value to support the inferior mortgages. As a result, the second or third mortgages can be treated as unsecured debt in your repayment plan. This effectively removes the mortgage lien from your home and allows you to pay a typically small percentage of what is owed on your loan.
In some cases, you may have the option to negotiate with your mortgage lender to reduce the applicable interest rate or re-amortize your loan. By renegotiating your mortgage loan, you can obtain a lower monthly payment which can allow you to remain in your home.
A debtor who wants to get out from under his or her mortgage loan can surrender the home back to the lender in a bankruptcy. The mortgage lender must accept the surrender of the home as full satisfaction of the enter loan amount because any remaining deficiency balance is treated as unsecured debt in the filing. In other words, if you file a Chapter 7 case the deficiency balance will be discharged in full. If you file a Chapter 13 case, it will be treated as an unsecured debt under your Chapter 13 plan and you will pay pennies on the dollar owed.
If you have questions about filing for bankruptcy protection, we have the answers. Call us today to schedule your initial consultation. Our office is located in Melbourne, but we proudly serve individuals and businesses across the State of Florida.
If you are planning to file for bankruptcy protection, you may be worried about what will happen to your home. Bankruptcy law provides a debtor with numerous exemptions which safeguard assets from being included in the bankruptcy estate. Additionally, many debtors do not realize that their real estate can be positively affected by your filing.
A debtor who owns a home with more than one mortgage on it may be eligible to strip the inferior lien on it. To take advantage of the lien stripping process, you must be “underwater” on your mortgage. In other words, the value of your home must be less than what you owe on your first mortgage loan. The argument is that the home does not have sufficient equity to support the second (or third) mortgage loan, so the inferior liens should be treated as unsecured debt, which effectively strips the lien from your home.
In some cases, a debtor may be able to negotiate better contract terms with their mortgage lender. Most commonly, you can lower your interest rate or re-amortize your mortgage loan. This could result in you having a lower monthly payment which, in turn, can help you afford to keep your investment property.
If you are underwater on your home and you want to get out from under the debt, a debtor is allowed to surrender the real property back to the mortgage lender. The surrender is treated as “payment in full” because any remaining balance is treated as unsecured debt. If you file a Chapter 7, your unsecured debt is usually discharged or eliminated in full. In a Chapter 13 case, your unsecured creditors are typically paid a very small percentage, if anything, on what is owed.
If you are a homeowner struggling to pay your mortgage, it is important to consider all of your debt relief options. Two options you should educate yourself about are filing for bankruptcy and short sales.
A short sale is the process that permits you to sell your house for a lower amount than what you owe on your mortgage loan. The sale proceeds are used to pay a large portion of your mortgage debt, but the lender is still “short” or owed money after the transaction has been completed.
In deciding whether filing a bankruptcy or pursuing a short sale is more beneficial for you, there are numerous factors to consider. Below are a few things to think about:
Time. The short sale process can be complicated and very time-consuming. You must obtain your mortgage lender’s approval to pursue a short sale and many lenders take a long time to review the documentation and provide the necessary approvals. Also, there is no assurance that your short sale will close. If you file a Chapter 7 or Chapter 13 case, you are provided instant relief from your creditors because the automatic stay prohibits any further collection efforts against you while your bankruptcy is pending. Once you obtain your discharge order, you eliminate most, if not all, of your debt.
Deficiency balance. In a short sale, there is always a deficiency balance remaining on your mortgage after the sale of your home. Thus, it is vital to determine in advance whether or not your lender will waive the right to collect the deficiency balance as part of the short sale agreement. If not, you will remain liable to pay the remaining amount. In a bankruptcy case, you can eliminate the deficiency balance after the short sale or foreclosure of your home.
Total debt. If you have a significant amount of debt in addition to your mortgage, such as medical bills or credit card debt, a short sale might not be the best option. However, if your mortgage loan is the cause of your financial troubles, a short sale could be a good solution. Filing a bankruptcy is the most comprehensive means for dealing with numerous different types of debt at one time. All of your creditors are included in a bankruptcy, so you are able to obtain a fresh financial start at the conclusion of your case.