Facing overwhelming debt can be a frightening experience. It can seem like you have failed at life, and your financial future is hopeless. Clinging to property such as your home might be your last resort. Often, your largest form of wealth will be the home you are living in.
Can you keep your home and file for bankruptcy? The answer hinges on what type of bankruptcy you choose and its associated conditions.
Chapter 13 bankruptcy
With Chapter 13 you may be able to free yourself from debt without forfeiting assets, such as your house. Under this scenario, many of your debts may be reorganized into monthly payments. You have three to five years to pay your debts off using a repayment plan. This may be the best choice to keep your home if you have a steady income to manage your debt.
Chapter 7 bankruptcy
Chapter 7 bankruptcy can offer instant relief from debt. It is a "fresh start" and can rid you of your dischargeable debts, which includes credit card charges, medical bills, past utility bills and a host of others. Chapter 7 bankruptcy has some property exemptions that may allow you to keep certain possessions and under the right conditions, your house.
Once you file for bankruptcy, an automatic stay is put into place. This is a temporary order that shields you from bill collectors. It provides you with a breather from threats of foreclosure, auto repossession notices, wage garnishment or any other harassment you might receive from creditors.
If you have already been told your house is to be foreclosed, some quick action might help you keep it. If you give a convincing argument that you can make future mortgage payments, your lender might not foreclose. It may be that bankruptcy will make you more likely to pay off the mortgage because your other debts are better organized or discharged.
The federal Home Affordable Modification Program (HAMP) is another tool available to you. It is specifically designed to help homeowners avoid foreclosures. In HAMP, debt is renegotiated, with monthly payments reduced and the loan's timeline extended. To qualify for this program, you will need to meet a few requirements, such as having a reliable income.
You may be able to prevent foreclosure by modifying your loan. This negotiation occurs with your lender to restructure debt. If you demonstrate your ability to repay, your bank or lender might be willing to listen and lower an interest rate, change rates from adjustable to fixed or extend the repayment term.
As you can see, there are many options available to you when facing large debts and the threat of losing your house. Bankruptcy rules can seem complex and overwhelming. Also, nothing is guaranteed. Work with a legal professional to create a strategy that can address your needs and satisfy your creditors.