About Bankruptcy

Let’s define what bankruptcy is. Bankruptcy is a legal procedure through which individuals and businesses can eliminate or reduce some or all of their debts. In general, a bankruptcy can either be the liquidation type (Chapter 7) or the reorganization type (Chapter 13).

A liquidation bankruptcy, or Chapter 7 bankruptcy, is the most common in the United States. When you are heavily in debt and repayment or a settlement is not possible, this type of bankruptcy works better. Once you file for Chapter 7 bankruptcy, you are letting the court take over your assets (properties you own) and liabilities (the debts you owe). An automatic “stay” takes effect, which temporarily stops your creditors from collecting.  On the downside, you cannot sell any of your assets, including properties you own, without the consent of the court.

Can I Still Keep My House After Filing for Bankruptcy?

 

A trustee will be assigned to your case to act on behalf of the court which now has legal claim of your properties. The trustee can sell the non-exempt properties to pay off your creditors. After the Chapter 7 bankruptcy process, most of your debts will be wiped out except for the following:

  • Non-dischargeable debts such as student loan, government penalties or court fines and most taxes
  • Certain secured debts such as mortgage and car loan. You have to continue paying them if you want to keep these assets.
  • Child and spousal support
  • Debts you incurred after filing for Chapter 7 bankruptcy

This means that under the Chapter 7 bankruptcy process, you can keep the house if you continue paying the mortgage. Considering that you have filed for bankruptcy because you are unable to pay your debts, this can prove challenging.

The second type of bankruptcy is reorganization or Chapter 13 bankruptcy. This is the best option for people who are earning an income and just need time and payment arrangements in order to repay debts.  This includes:

  • Individuals who have defaulted on, or stopped making, their mortgage payments
  • Individuals who owe back taxes but need time to repay them
  • Homeowners who want to avoid foreclosure
  • Consumers who are buried in credit card debts with huge interest rates and late payment penalties and can’t seem to get out of the never-ending cycle of debt.

Chapter 13 bankruptcy takes longer than Chapter 7 bankruptcy, usually between 3 to 5 years of conforming to an affordable payment plan. The key to Chapter 13 bankruptcy is proposing a monthly payment that is as low as possible. If you have a mortgage on your home, this significantly reduces your monthly payments, maximizing your chances of getting back on track financially.

Is Filing For Bankruptcy The Only Option To Avoid Foreclosure?

 

This really depends on whether you’d like to keep your home or not. If you’d like to keep it, be ready for the challenges ahead.  The threat of foreclosure may drive others to file for bankruptcy. But there are alternatives to bankruptcy:

  • Refinance – take out a new loan with new terms through the Home Affordable Refinance Program (HARP) which was created to help make payments  more affordable
  • Repayment plan – work with your mortgage company to come up with a payment plan that benefits both sides
  • Forbearance – be honest with your mortgage company and let them know about your financial situation. They might offer to reduce or suspend your monthly payments for a certain period of time until you’re back on your feet.
  • Loan modification – you might try and check if you are qualified for the Home Affordable Modification Program (HAMP).

What If I Have To Give Up My House?

Don’t file for bankruptcy if you can avoid it by selling the house now and cutting your losses! If you decide that giving up your home is the best solution for you, then we can help! We’ll buy your house fast and with cash! We take pride in coming up with a win-win solution and relieving you of the burden of bankruptcy.

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