Chapter 7 “straight bankruptcy” & especially Chapter 13 “adjustment of debts” come with some powerful tools for preserving your home.
You’ve been putting off admitting that you could lose your home. But maybe you can save it! It’s a new year! Let’s do this! Here’s an impressive but still partial list how two chapters of bankruptcy can save your home and preserve the cash equity you have in your home.
With a Chapter 7 case:
- Immediately stop a foreclosure by your mortgage lender to give you time to:
- do a mortgage modification,
- catch up on the back mortgage payments, or
- sell your home to keep all or most of the equity.
- “Discharge”—legally write off—your other debts so that you can afford to make your home mortgage payments.
- Use your homestead exemption to “avoid” a creditor’s judgment lien on your home’s title, so that the creditor can’t force you to pay that debt when you sell or refinance.
- “Discharge” other debts so that you can pay debts that are liens on your property, such as your property taxes, income tax liens, and such.
- Prevent creditors who could sue you from getting judgment liens against your home.
- Prevent the IRS and state from recording a tax lien on your home for older tax debts that meet the conditions for being “discharged” under Chapter 7, thus avoiding being forced to pay such older taxes instead of paying nothing.
With a Chapter 13 case:
- Not only immediately stop a foreclosure, but gain much more time than with a Chapter 7 so that you can:
- do a mortgage modification, either to complete an ongoing one or to start one;
- catch up on the back mortgage payments, and be given not just a year or so as likely under a Chapter 7, but instead up to 5 years to catch up, making doing so much more feasible if you are many thousands of dollars behind;
- refinance your home, even it’s years later, perhaps after the home has increased in value; or
- sell your home to gain the equity, not necessarily right away as would usually be necessary in a Chapter 7 case, but a couple years from now, when the time is right for you and your family, and/or when you’ve built more equity in the home.
- “Strip” a second or third mortgage off your home’s title, thereby saving you hundreds of dollars each month AND turning your “under water” home (when you owe more than it’s worth) into one much closer to even, putting you often tens of thousands of dollars closer to again building equity in your home.
- Reduce or eliminate payments to other creditors so that you can better afford your mortgage payments.
- Either avoid paying an income tax lien on your home, or pay less than otherwise by forcing the IRS/state to accept or negotiate the value of that lien, and then at the end of the case get a release of that tax lien so that it’s no longer encumbering the title to your home.
- Prevent your mortgage lender from threatening foreclosure throughout the 3-to-5-year Chapter 13 case, forcing it to be patient.
- Prevent the IRS and state from enforcing their prior tax liens and from recording new tax liens during the course of your case.
- Avoid creditors who could sue you from getting judgment liens against your home and the leverage that often gains for them.
- Prevent the IRS and state from recording a tax lien on your home for older tax debts that meet the conditions for being “discharged” under Chapter 7, thus avoiding being forced to pay such older taxes instead of paying nothing on them.
- Stop your ex-spouse or state support enforcement agency from using its lien against your home as aggressive leverage against you, allowing you to catch up on any back support as your budget allows.
- If your income and/or your expenses change during the course of the 3-to-5-year case, be allowed to change the terms of your Chapter 13 payment plan and still keep your home.
- Commit to saving your home with these many tools for doing so, but then be allowed to change your mind if things don’t turn out as expected, either letting go of the house and staying in the Chapter 13 case for other reasons, or switching into a Chapter 7 case if that’s then better for you.