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Will Filing Chapter 7 Bankruptcy Stop a Foreclosure?
If you are behind on your monthly mortgage payments and you have reached the point that your loan is in default, you could be facing a possible foreclosure on your home. You probably realize that if the bank forecloses on your loan, your home will be seized and sold, with the proceeds of the sale will go toward satisfying what you owe the bank. In the meantime, you might not have a place to live, and the foreclosure will leave a lasting mark on your credit.
Most people who are facing possible foreclosure often have a substantial amount of other debt in addition to their home loan. These obligations may include medical bills, credit card debt, and outstanding loans, such as personal loans and educational loans. As a result, it is not unusual for an individual in such a situation to consider filing for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code. In certain cases, Chapter 7 bankruptcy might allow you to stop foreclosure proceedings, and a qualified bankruptcy attorney can help you understand your available options.
Nondischargeable Co-Signed Debts
Co-signed debts get tougher if your co-signer challenges the discharge of your obligation to him or her, or if the debt isn’t dischargeable.
Last week we discussed obligations on co-signed debts, both to the joint creditor and to your co-signer. In that discussion we assumed that both those obligations could be discharged (written off) in bankruptcy. But what if the co-signer challenges your ability to discharge the debt? And what if the underlying debt can’t be discharged, such as a recent income tax? We address these two situations today.
Co-Signer Challenging Discharge
If you file bankruptcy any creditor can challenge your ability to discharge a debt. But creditors’ grounds for successfully doing so are narrow, so such challenges are rather rare. The creditor essentially has to prove that you committed fraud in incurring the debt. You must have misrepresented your intentions at the time the obligation was created.
Concerns about Co-Signed Debts
If you have a co-signed debt, you have two separate sets of concerns. Those having to do with your common creditor, and those with co-debtor.
If you have a co-signed debt you tend to be more concerned about one of two sets of problems. You’re either mostly worried about the other co-signer, or about the creditor you’re both owe on the debt. It’s likely smart to be aware of both. Let’s start with concerns about the creditor.
Concerns about Your Joint Creditor
There’s a good chance you’re worried about the creditor you both owe because you’re having trouble paying the debt. This assumes that you are the one who is supposed to be paying the debt. The point of having a co-signer was to give you more incentive to pay the debt. The creditor has the right to make your co-signer pay the debt if you don’t. We’ll get into your options shortly.
When Should I Delay Filing for Bankruptcy?
Declaring bankruptcy can get you out of a less-than-favorable financial situation when you are in need, but your circumstances will dictate which type of bankruptcy you are eligible for and how much the bankruptcy will help you. Once you have figured out that you want to file for bankruptcy, you must then determine when your most opportune time to file is. In certain situations, you may want to delay filing for bankruptcy. Delaying your bankruptcy can sometimes allow you to keep more of your money, protect a friend or family member’s money or even increase your chances of qualifying for a Chapter 7 bankruptcy. Here are a few situations in which you may want to consider delaying filing for bankruptcy.
You Paid Money Owed to a Family Member Too Close to Filing
If you pay certain creditors $600 or more prior to receiving a discharge, your bankruptcy trustee could demand the money back from the creditor. This is called a preference because you have put that creditor in a better position than your other creditors. The preference period for most creditors is 90 days prior to filing for bankruptcy. For “insiders,” such as friends or family members, the preference period is one year prior to filing for bankruptcy.
Additional Charges and Curing Your Mortgage Arrearage
Resolve disputes with your lender in Chapter 13 about 1) additional fees and charges, and 2) whether you’ve cured the mortgage arrearage.
Last week we described a Chapter 13 procedure to force mortgage lenders to resolve mortgage accounting disputes. This procedure focuses on changes to the monthly mortgage payment amount during the case. These are often just the normal contractually mandated changes arising from adjustments to the mortgage interest rate, and in property taxes and homeowners’ insurance. You and your lender need to be on the same page on the monthly amount so that you can stay current. Because of the importance of this, Rule 3002.1 of the Federal Rules of Bankruptcy Procedure provides an enforceable way within Chapter 13 for you to timely learn about mortgage payment changes and to efficiently resolve any related disputes.
This Rule also addresses two other practical problems about mortgage accounting:
What Are the Laws for Filing Multiple Bankruptcies?
Most Americans have some sort of debt, with one of the most common forms of debt being credit card debt. Most of the time, debt is manageable if you are able to budget your money, but sometimes life happens and debt can become overwhelming. In cases such as those, bankruptcy is often your best option. Filing for bankruptcy can allow you to manage your debt in affordable payments or even discharge your debt, allowing you to wipe your slate clean.
Unfortunately, sometimes your first bankruptcy is not your last bankruptcy. If you find yourself drowning in unmanageable debt again, you may wonder if it is possible to file for bankruptcy again. Technically, the answer is yes, but there are a few stipulations you should know about.
Filing for Bankruptcy More Than Once
You can file for bankruptcy as many times as you want to file. There are no rules about how many times you can file for bankruptcy, but there are rules as to how often you can receive a discharge of your debs. The time between discharges is based on the type of bankruptcy you filed before, whether or not you received a discharge in that bankruptcy and the type of bankruptcy you are trying to file. The waiting periods between bankruptcy discharges are as follows:
Bankruptcy Can Remove a Judgment Lien
Bankruptcy can, in the right circumstances, remove a judgment lien from the title to your home. Here are the conditions for pulling this off.
The Problem, and the Bankruptcy Solution
Do you have a judgment lien on your home? If so, the debt on that judgment is secured by whatever equity you have in your home. The debt is encumbering the title to your home, eating up your equity.
A judgment lien on your home gives the creditor holding the judgment lien legal rights against your home.
Those lien rights, those property rights, are similar to the lien rights of a vehicle loan lender. The lender is a lienholder on the car’s title. If the vehicle owner doesn’t pay the vehicle loan, the lender can repossess the vehicle. Similarly, a judgment lien holder on your home can, under many circumstances, foreclose on your home. At the least it can force you to pay the debt when you sell or refinance your home.
Bankruptcy Stops a Property Tax Foreclosure
Bankruptcy can help if you’re behind on real estate taxes. Chapter 7 by getting rid of other debts, Chapter 13 by buying you lots more time.
Bankruptcy Stops a Property Tax Foreclosure
Filing either a Chapter 7 "straight bankruptcy" or a Chapter 13 "adjustment of debts" stops a foreclosure by your property tax authority.
Filing bankruptcy stops most forms of debt collection through the "automatic stay." In particular the automatic stay stops "any act to... enforce any lien against property of the [bankruptcy] estate" Section 362(a)(4) of the U.S. Bankruptcy Code. The bankruptcy "estate" includes all assets that you own when you file your bankruptcy case. It includes your home.
A tax authority’s foreclosure for property taxes is the enforcement of the property tax lien. That foreclosure becomes illegal as soon as your bankruptcy filing imposes the automatic stay.
Protecting Excess Home Equity through Chapter 13
Chapter 13 can be a highly advantageous way to protect your home equity if that equity is larger than your homestead exemption amount.
The Problem of Too Much Home Equity
Our last two blog posts were about protecting the equity in your home through the homestead exemption. Two weeks ago was about protecting the current equity; last week about protecting future equity. The blog post about protecting current equity assumed that the amount of equity in your home is no more than the amount of your applicable homestead exemption. For example, if your home is worth $300,000, your mortgage is $270,000, that gives you $30,000 of equity. If your homestead exemption is $30,000 or more that equity would be protected in a Chapter 7 bankruptcy case.
But what if you have more equity in your home than the applicable homestead exemption amount? In the above example, what if you had $30,000 in equity but your homestead exemption was only $25,000? Your home could conceivably be sold by the bankruptcy trustee if you filed a Chapter 7 case. Your creditors would receive the proceeds of the sale beyond the homestead exemption amount. Presumably you need relief from your creditors. But clearly don’t want to give up your home and its equity in return for being free of your debts.
Protecting Future Home Equity through Chapter 7
Protecting present home equity is a sensible focus when considering bankruptcy. Protecting future potential equity can be even more important.
Our last blog posts discussed how to protect the equity currently in your home through the homestead exemption. We discussed property exemptions in bankruptcy in general, and federal and state homestead exemptions in particular. Overall we showed how your homestead exemption can preserve the equity you presently have through a Chapter 7 case.
We mentioned that you can also protect your future home equity through these same tools, but we didn’t describe how. This is worth more attention.
Future Home Equity
Chapter 7 bankruptcy fixates on the present. It deals with debts you have at the moment your lawyer files the Chapter 7 case at the bankruptcy court. In particular, Chapter 7 usually is not interested in new assets you acquire after the date of filing, For example, the money you earn when you go to work the day after filing is outside bankruptcy jurisdiction. Again, for most purposes bankruptcy looks only at what you own on the date of filing.
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