Your Home in Chapter 7
People often ask our Montgomery bankruptcy lawyers whether it makes sense to file a Chapter 7 bankruptcy if you own a home. This is a very difficult question to answer without knowing a lot more information about the client. Of course our first question to ask is if you want to save your house, are you trying to delay a foreclosure, or do you simply want to walk away from the house with less debt and owe nothing on the mortgage?
In most cases are Chapter 7 bankruptcy clients keep their homes as long as they are current on the mortgage payments. A very small number will lose their home, but only if they have significant equity that can be used by the Chapter 7 trustee to pay the unsecured creditors. This will occur when you have non-exempt equity in the home.
Another question that we must discuss with all potential Chapter 7 debtors is would he/she rather lose your home in bankruptcy or would you rather lose your home in a foreclosure. It is of great importance to be able to distinguish between these two scenarios. If you're behind on your mortgage payments eventually you will lose your home even if you're in a Chapter 7 bankruptcy. Only a Chapter 13 debt consolidation could help save the home in this situation. A Chapter 7 might provide some relief from a foreclosure, but it is generally only temporary because the only thing that Chapter 7 can do is delay the foreclosure; it cannot permanently stop it.
As previously discussed if you have no equity in the home and you are able to exempt the equity that you may have, the trustee will not be able to take your home and sell it. Even if you decide that you no longer wish to continue making the mortgage payments on the home, the trustee will still not take the home, but the trustee will instead surrender the home directly back to the mortgage company. The mortgage company will generally ask that the debtor sign a Deed in Lieu of Foreclosure. This allows the mortgage company to skip the foreclosure process and will help expedite your discharge in the Chapter 7 bankruptcy.
The final step which we must consider is what to do if you have non-exempt equity in your home. Just because your home has more than $15,000 in equity per debtor does not necessarily mean that the home will be taken by the trustee and sold (for joint debtors the exemption limit is $30,000). In Alabama the trustee will allow an additional 10% of the home's value to be deducted before you calculate the equity in the home this is because the trustee operates under the belief that the cost of the sale would include any type of repairs and real estate fees which will be around 10% of the market value of the home Therefore if a home has a market value of $100,000 we would only start to calculate exemption limits after we reduce the home's value by 10% which would leave a $90,000 starting point to calculate the exemption limits. If the home is owned jointly by the debtors and the debt on the home is more than $60,000 then the trustee will not take the home and put it up for sale for the benefit of the unsecured creditors. For more in-depth information on this, we suggest that you contact one of our Montgomery bankruptcy lawyers to discuss it in detail. We understand that looking at the issues surrounding homes and bankruptcy can be complicated. We suggest calling one of our experienced Montgomery bankruptcy lawyers to get more information. Remember that all consultations are always free, and we can usually see you within 24 hours.
At The Sellers Law Firm, we have represented thousands of people in Chapter 7 and Chapter 13 cases. We have four offices which are located in Montgomery, Selma, Greenville, and Troy. To meet our team, call us at 334-LAWYERS (529-9377) and set an appointment. You may also contact us by using the “text us” link or Contact Form on our website. Remember that doing nothing, changes nothing so act today!