Chapter 7 and Chapter 13 bankruptcy will stay on your credit report for the same amount of time; about ten years. Although they both have the same effect on your credit score, a particular creditor reviewing your report to decide whether to lend you money might view one chapter more favorably than the other. In particular, a creditor might be more willing to lend to you if you filed for Chapter 13 rather than Chapter 7.
Should I File for Chapter 7 or Chapter 13 If I Want to Keep My Home?
It’s possible to keep a home when you file for bankruptcy, but the circumstances must be right. You’ll need to be sure that you meet the requirements of the chapter you file. For instance, Chapter 7 filers must be current on payments and protect all home equity with a bankruptcy exemption. By contrast, Chapter 13 filers can catch up on missed mortgage payments and keep the home. Read on to learn about:
- protecting home equity in Chapter 7 and 13
- keeping a home in Chapter 7
- catching up on past-due payments in Chapter 13, and
- removing liens and lowering mortgage payments in Chapter 13.
Protecting Your Home Equity in Chapter 7 or Chapter 13 Bankruptcy
Start by determining whether you can protect all of your home equity in bankruptcy. You must complete this critical step in both Chapter 7 and Chapter 13 bankruptcy.
In both bankruptcy chapters, you protect an asset with a bankruptcy exemption. Each state has a list of exemptions, so the property type and amount of equity you can protect using state exemptions varies widely.
Only a few states let you keep all of your home equity when you file bankruptcy. Most states have a much lower “homestead exemption.” Here’s how the homestead exemption works in Chapter 7 and 13.
- Chapter 7 case. Suppose the exemption isn’t enough to cover the entire amount of your equity. In that case, the Chapter 7 court-appointed trustee will sell it and use the proceeds above your exemption amount to pay off some of your unsecured debt, like credit cards and medical bills.
- Chapter 13 case. Chapter 13 bankruptcy works differently. You won’t be forced to give up any property. Instead, you’ll pay for the nonexempt portion of the equity in your plan. Of course, if you have significant nonexempt equity, this could get expensive. You’ll have to demonstrate that you have enough income to pay all amounts required in your plan.
Example. You have $50,000 in equity in your house, but the maximum amount you can exempt is $30,000. You’ll have to structure your Chapter 13 payment plan so that your unsecured creditors will receive at least $20,000 over the life of the plan. That amount is in addition to any other debts your plan payment must cover, like mortgage arrearages and car payments.
Find out more about what happens to your home and mortgage in Chapter 13 bankruptcy.
But being able to protect or pay for your home equity isn’t enough. You’ll have other requirements you must meet, as well.
Keeping Your Home in Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is often more attractive because it’s simpler and gets you on the road to financial stability sooner because you don’t pay into a three- to five-year repayment plan.
You’ll be able to keep your house as long as you meet the following criteria:
- You’re current on your house payments.
- You can protect all of your home equity with a bankruptcy exemption (see above).
- You’ll be able to continue making your payments in the future.
Chapter 7 bankruptcy does have some limits as a tool for managing mortgage debt, however. It won’t help you catch up on past-due payments, and it might be challenging to protect the house if you have a lot of equity in it. The bankruptcy trustee will sell it and use the nonexempt equity to pay other creditors, such as back taxes, credit card balances, and personal loans.
Chapter 13 bankruptcy can be a better choice to address both those issues so you can keep the home. Chapter 13 might also allow you to get rid of second or third mortgages.
Chapter 13 Bankruptcy and Past-Due Mortgage Payments
If you’re behind on your mortgage payments and you want to keep the house, Chapter 13 bankruptcy provides a mechanism for helping you get caught up—something that Chapter 7 bankruptcy cannot do.
- Propose a repayment plan. In Chapter 13 bankruptcy, you propose a repayment plan that will allow you to pay your creditors over three to five years. You can treat your mortgage arrearage as a separate debt and add it to your payment plan.
- Show you have sufficient income. Using the Chapter 13 plan to catch up on your arrearages will only work if you have the income to make both your regular monthly mortgage payment and your plan payment while you’re in bankruptcy.
Once you’re in Chapter 13, the mortgage holder can’t foreclose if you’re paying your house and plan payments on time and keeping to your mortgage terms, like ensuring that you have homeowners insurance in place.
Using Chapter 13 Bankruptcy to Remove Junior Liens
If you have a second or another junior lien on your homestead, you might be able to get rid of it through a process called “lien stripping.” Lien stripping is available only in a Chapter 13 case and only when your property is worth less than the primary loan balance.
To strip the lien, you’ll have to file a motion in the bankruptcy court and present evidence on the property’s value and the mortgage loan balances. If the court voids the junior lien, the debt you owe to that creditor will be treated in the Chapter 13 case as if it were unsecured. Any remaining balance will get wiped out with other qualifying unsecured debt at the end of the case.
Learn about lien stripping and getting rid of second mortgages in Chapter 13 bankruptcy. Call Firebaugh & Andrews for a free consultation 734-722-2999
If you file bankruptcy will you lose everything? 10 bankruptcy myth busters
Bankruptcy Myths #1: If I file for bankruptcy, I will lose everything.
This is a common misconception that keeps people who really should file for bankruptcy from doing it. Federal and Michigan laws provide exemptions that can protect (up to a certain value) assets, such as your house, your car, money in qualified retirement plans, household goods and clothing. For most people, they’ll lose nothing in the bankruptcy process!
Bankruptcy Myths #2: If I file for bankruptcy, I will never again be able to buy a house or a car.
Many of our clients are able to obtain new cars after completing the bankruptcy process. However, each lender varies in their business practices so you may need to shop around. Lenders take other factors into account as well, such as current employment, current income, and credit history.
To purchase a new home it usually takes a bit longer. It typically takes about two years to get a house after you file for bankruptcy.
Bankruptcy Myths #3: If you’re married, both spouses have to file for bankruptcy.
If one spouse has a significant amount of debt in their name only, it may make sense for only one spouse to file. However, if there are joint debts then it may be prudent for both spouses to file. If there are joint debts and only one spouse files then the creditor may still attempt to collect the debt from the non-filing spouse.
Bankruptcy Myths #4: I won’t ever be able to get credit after my bankruptcy.
Many of our clients are shocked by how quickly they’ll start getting credit card offers in the mail again. By opening a new credit card and habitually making on-time payments your credit score will quickly improve beyond pre-filing levels. Please see our credit repair kit to view other ways to increase your credit score. We help our clients increase their credit scores through bankruptcy. It’s also important to monitor your credit score.
Bankruptcy Myths #5: People who file bankruptcy are financially irresponsible.
There are a multitude of reasons that people need to file for bankruptcy, many of which are out of their control. Often it is because people run into very serious personal problems such as a job loss, serious medical issues, or a divorce. Unemployment, the cost of running two households following divorce, or the cost of medical care have all driven well-intentioned Americans into bankruptcy. It’s financially irresponsible to avoid your creditors, ignore your bills and drive yourself further into debt. Millions of well-intention-ed Americans have filed for bankruptcy and come out stronger and more successful!
Bankruptcy Myths #6: You can’t get rid of back taxes in Bankruptcy.
Certain federal, state and local taxes can be discharged under the bankruptcy laws. There are several qualifications that must be met, but once these are met, the taxes may be discharged.
Bankruptcy Myths #7: It’s really hard to file for bankruptcy
Although there were new laws enacted in 2005, the new laws were drafted to prevent fraud and bankruptcy abuse.
Bankruptcy Myths #8: Everyone will know you have filed for bankruptcy.
It is unlikely anyone will know that you have filed for bankruptcy unless you tell them. While bankruptcy is a matter of public record, someone would have to specifically track down the information using your personal information in order to find out if you filed for bankruptcy.
Bankruptcy Myths #9: You can’t afford to hire an attorney.
At Firebaugh & Andrews , initial consultations are FREE! Money is never a reason we turn clients away. We pride ourselves on our flexible payment plan options which can be customized to your unique circumstances. In our experience, the worst thing a client can do is obtain legal advice from the internet, co-workers, family or friends.
Bankruptcy Myths #10: There is a minimum amount of debt required to file for bankruptcy.
There is no minimum amount of debt required to file for bankruptcy. Every situation is unique.
Call Firebaugh & Andrews today for your free consultation 734-722-299
A Look At Personal Bankruptcy & What To Expect
One of the most difficult decisions that you can face is whether or not to file for bankruptcy. For individuals, there are basically two types of personal bankruptcy, which includes Chapter 7 and Chapter 13. Designed to give the filer a fresh start in life by wiping out certain debts, a Chapter 7 bankruptcy will rid the filer of credit card and other unsecured debt. A chapter 13 bankruptcy, on the other hand, is a court-approved payment plan in which the filer is required to repay a predetermined percentage of their debt. The determination of which chapter to file will be based on the filer’s disposable income, if any, after paying their necessary monthly bills.
When many people file for bankruptcy, their first thoughts are of their assets and whether or not they may lose their home. In a Chapter 13 repayment plan, the majority of filers are allowed to keep their property in exchange for repaying a portion of their debts. A Chapter 7, however, is designed to be a liquidation process that often results in the sale of non-exempt property. Which property is non-exempt in a bankruptcy proceeding? Each state has it’s own laws pertaining to the amount of property that an individual or married couple can keep without having to worry about it being liquidated.
The official bankruptcy process begins upon filing a petition with the local bankruptcy court. This can either be done individually, also known as pro se, or with the help of an attorney. For most, hiring Firebaugh and Andrews is the best way to make sure that every form is completed accurately and in order to make sure their assets are protected as much as possible. Upon the filing of a bankruptcy petition, the court will assign a trustee to the case and will set a date for a Meeting of the Creditors. Although creditors of the filer are invited to attend, they are not required to do so. The filer, however, is required to attend and will be questioned by the trustee, under oath, while having the meeting recorded. This meeting is typically the only appearance required of the filer unless special circumstances are present.
Following the Meeting of the Creditors, often referred to as the 341 meeting, the creditors will have 30 days to object to the filers property exemptions and another 30 days to object to the discharge if the filing is a Chapter 7 bankruptcy. In a Chapter 13 proceeding, creditors may object to the payment plan but the discharge will not be granted until the payment plan is complete. A Chapter 13 bankruptcy can last for up to 5 years before the payments are completed and a discharge is issued. Following the discharge, the bankruptcy case will be closed and the process will be complete.
We offer free consultation, call us today 734-722-2999
Why hire a bankruptcy lawyer?
What can be more pathetic than being bankrupt? It has to be making the decision to file for bankruptcy. And what can make it more pathetic is to find a good bankruptcy lawyer for this purpose. In this 21st century of cut throat competition it might not take long for an individual to file a case a bankruptcy when the individual concerned is reduced into nothing. But hardly does a common man know the procedure or the requirements of filing for bankruptcy. This is the necessity of a bankruptcy lawyer comes into the picture.
But what is more important is the choosing of a bankruptcy lawyer who can file and win the title of bankrupt for his client. There are a few steps that are being highlighted below and what may help an individual in choosing a bankrupt lawyer to serve his or hers purpose. The toughest part of this whole is, choosing whether or not to file a case for bankruptcy. And if the choosing part leads to the answer yes, then that is from were the individual will feel the necessity of a bankruptcy lawyer.
Bankruptcy is actually a special area of the law, which makes it all the more important for an individual to hire a lawyer who has all the respective knowledge that is usually required in this field. Thus, the most essential and important step should be to contact the local bar association of the locality. This is usually done to take there advice before deciding upon which lawyer will the individual will entrust his case to prove him bankrupt. The individual can also choose his own lawyer and then ask the associations thoughts and concerns over this lawyer. The individual can also take recommendations from the association regarding the lawyer of his choice. As the bar keeps in touch with these lawyers, it has its views and thoughts against them, and depending upon the nature of the case the association also suggests a list of lawyers, who the association thinks are capable of handling this case.
The individuals concerned should however not restrict themselves to only what the bar says or what the individual thinks, the individual should try to gather information about the lawyer or any other lawyers by asking and inquiring to their friends, colleagues and their relatives. Or even better is if the individual can inquire to other lawyers and attorneys regarding the lawyer of his choice or any other lawyer that may suit his or hers case requirement. The individual can also search online on the web before coming to a decision and before deciding upon his choice among the lawyers. Start with Firebaugh and Andrews with over 40 years experience conveniently located in Westland, Call them today 734-722-2999