Saving Your Home While Filing Bankruptcy
If you are like most Georgians,
your home is valued below the unpaid balance of your mortgage. If you owe more than the home is worth, we call this being "underwater." While bankruptcy cannot necessarily fix this
situation, it does not make it worse, it can make it better, and it definitely
does NOT cause you to lose the home.
For underwater homes, since there
is no equity, your creditors have nothing to gain from selling the home and
therefore the bankruptcy judge and trustee do not make you sell the home. Since the home is has lost its value you have the ability to still live in and sell your home is you so choose. However, if you have a second or third mortgage, the
bankruptcy can help remove that lien which is a great way to immediately pick
up equity in your home. Lien stripping is a very important and valuable
tool to a bankruptcy debtor and can be an important piece of your financial
recovery.
For homes that are paid off or have
equity, clients also have options. The
best is usually to file a Chapter 13 bankruptcy. This plan allows you to retain the equity in
your home as long as you pay at least that much to your creditors over the next
three to five years. Congress has
essentially said that we like people to have equity in their homes. You can use it as a loan to yourself. Keep the $60,000 equity, but pay your
creditors back $60,000 in 60 monthly installments. This can be a great plan, especially if you
owe the creditors $300,000 and effectively get a discharge of all the rest while
getting to keep your home equity. Clients get to keep the first $20,000 as an exemption with no strings attached.
Our lawyers can explain this and
other options to you. Clients with
equity in their homes have much to lose, so do not want to act without full knowledge.
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