The potential to lose your home can be one of the most stressful and emotionally trying aspects of going through a tough financial period in your life. While some may consider filing for bankruptcy, many people fear that in that process, they will lose the most important asset they own, which is a safe place to live. There seems to be a misconception that people who file for bankruptcy will lose their homes; however, in many cases, filing for bankruptcy can help home owners save their homes.
One of the most common ways that a bankruptcy can assist you with keeping your home is if you are late on your payments and/or facing a foreclosure. After trying solutions like loan modifications with mortgage companies, many people are left wondering what other options they might have to save their homes if they are late on payments or facing a foreclosure. Fortunately, filing for bankruptcy can help you keep your home when you are behind on mortgage payments and/or facing foreclosure.
When you file for chapter 13 bankruptcy, an automatic stay goes into effect immediately. The automatic stay will stop any foreclosure proceedings and will give you more time in your home. The chapter 13 bankruptcy will put all of your late payments, or arrears, into the chapter 13 repayment plan; this will give you a chance to catch up on arrears monthly over the length of your Chapter 13 plan. You will still be responsible for your ongoing mortgage payments in addition to the monthly plan payment.
If you are interested in filing a Chapter 7 bankruptcy, there are also ways for you to keep your home. Generally, if you are current on your home mortgage payments, you will be able to keep your home. This may not apply, however, if you have a large amount of equity in your home. Should you have an excessive amount of equity in your home, the Trustee may decide that you need to sell your home in order to use the money to pay back some of your creditors. Fortunately, each state has a certain set of what are called exemptions that apply to your property; there is a dollar amount allotted for different types of property that help debtors keep some of their assets. For people who own homes, you can “exempt” a certain amount of equity in your home, allowing you to keep your house. For example, in Missouri, the Homestead Exemption allows home owners to exempt up to $15,000 in equity in their homes. This is an excellent option for people who have managed to stay current on their mortgage payments, but have been struggling due to other debts.
However, even after using all available exemptions, if you have excess equity in your home still, you may still be able to keep your home, but you may have to proceed with a chapter 13 bankruptcy instead of a chapter 7 bankruptcy. A Chapter 13 bankruptcy is a good option for individuals who have excess equity in their homes because instead of making you sell the property, you are asked to pay the amount of equity over the course of your plan. It will increase your monthly payment, but you will be able to keep the property.