Protecting one’s home from foreclosure is a very important aspect to being in debt and experiencing financial hardships. No one wants to lose their home and many people begin to feel like their options are dwindling with each passing day. While most people understand that filing for bankruptcy could protect their home, few people have an understanding of how the process works.
Keeping Your Home
Filing for Chapter 7 versus Chapter 13 is quite different, especially when it comes to the fate of one’s assets. In a Chapter 7 case, there is no guarantee that your home will be protected from foreclosure after the case is discharged. Although there are bankruptcy exemption laws that can protect one’s home, not everyone is eligible nor does every state’s exemption laws protect every home. A Chapter 13 filing can offer more protection for your home as you will be required to develop and maintain a payment plan as part of the case. Since you will be continuing to make payments to the lender, the foreclosure process will be avoided.
Another perk of filing for Chapter 13 is that it can resolve second mortgage troubles. In many cases, people enter bankruptcy with debts on both their original mortgage and a second mortgage. Problems get worse when the home begins to lose value, which then puts the second mortgage “underwater” in terms of loan-to-value ratio. A Chapter 13 filing may be able to convert the portion of the underwater second mortgage debt into a Chapter 7 case, thereby eliminating the debt owed on this amount. The remaining amount would then be repaid as usual in the active Chapter 13 case.