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If you’re planning to file, you’re probably concerned about what happens to your mortgage after chapter 13 discharge. You’ve probably heard that filing bankruptcy has major drawbacks, which it does. Filing can cause a significant drop in your credit scores and make it more difficult to get approved for loans, or even jobs in the future.
Mortgage Alternatives to Filing Chapter 13
If your home is protected in a bankruptcy filing, your fresh start can make your mortgage payments more manageable. You can take up to 5 years to catch up your missed payments. But, your monthly income must be enough to cover both the plan payments (to catch up your home loan) and the regular monthly mortgage payments going forward. Continue paying all of your HOA dues, including any amounts you were behind on when you filed for bankruptcy. Even though you can discharge your personal liability for any HOA dues owed before your filing date, the HOA will typically still have a lien on your home.
Mortgage Arrearages while in Chapter 13
We're funded by Harvard University and will never ask you for a credit card or payment. If you own a home, the federal exemption scheme is often a poor choice because it only protects $27,900 of equity in your personal residence. And most of the states that offer the federal exemptions offer a higher homestead exemption. For example, New York’s homestead exemption is at least $82,775 and Connecticut’s homestead exemption is at least $75,000. So if you own and occupy your primary residence in one of those states, selecting the state exemptions would allow you to protect over $50,000 more in equity. It’s tough to keep to a payment plan over three to five years, even though modifications are allowed.
Get up to $500k from your home equity.
Next up, learn what you need to know if you’re trying to buy a new house or refinance your current home after a bankruptcy. You may not be able to get a mortgage during bankruptcy, but you can get one after bankruptcy if you otherwise qualify. Nonconforming loans like those from government agencies may not even have a waiting period. There’s usually a certain period of time that you must live in the house before it can be considered for an exemption. For example, if you file under the federal statute, you must own the home for 40 months. Learn more about filing for bankruptcy if you have equity in your home.
Those involve going back to court and explaining why you need one. Through it all, you have to keep current on your mortgage payments, as well as all the other payments agreed to in the plan. You may desperately want to keep your house, even if you’re so deep in debt you’re considering filing bankruptcy. That’s understandable – it not only has an emotional attachment, but could some day be an asset, even if you’re behind on payments now.
Bankruptcy exists to help people get back on their feet and regain control of their finances. To help with this, the government created a set of exemptions that allow individuals to maintain their quality of life while resolving their issues with creditors. Lenders generally won’t approve you for a new mortgage until several years after your chapter 13 discharge. You’ll also have to get permission from the bankruptcy trustee in order to take out the new loan. If you make enough from the sale, you can use the proceeds to pay off the remainder of your payment plan and discharge your debt, or you may be allowed to keep the money for yourself.
I filed for bankruptcy, and it was the best decision I made - Fast Company
I filed for bankruptcy, and it was the best decision I made.
Posted: Mon, 15 Jul 2019 07:00:00 GMT [source]
Rocket Mortgage and other lenders may give you the option of getting an FHA or VA loan as long as the Chapter 13 bankruptcy is discharged or dismissed before you apply. There are instances where you may have options in deciding which exemption rules apply, so speaking with your bankruptcy attorney is always wise. Certain states allow you to double the amount of equity exempted if you file for bankruptcy jointly as a married couple. When you file for Chapter 7, the automatic stay stops collection actions, including foreclosures.
California Bankruptcy Exemptions
Most people are able to rebuild their credit and have a better score within a year of getting their bankruptcy discharge. This handy PDF from the Nebraska federal bankruptcy court is quite helpful in explaining the in ins and outs of reaffirmation of debts in bankruptcy. What property you can keep under California and federal exemption laws. Welfare benefits and retirement accounts are almost always protected — but only if you list them on your paperwork. Social Security, unemployment benefits, 401(k), disability benefits, veteran benefits, etc., are all protected by federal law. That said, if you have a lot of money saved in any of these accounts, it might be wise to talk to an attorney.
Determine Your Status With the Mortgage Company
This means you give it back to the bank or financial institution that gave you the car loan. Sometimes a filer wants to keep property that a trustee could otherwise sell for a reasonable amount. In that case, many trustees will sell it to the filer at a discounted price—usually about twenty percent less. The deal will depend on the amount the trustee would save on sales costs. You will need permission from a bankruptcy judge to sell your home during chapter 13 bankruptcy.
You can treat your mortgage arrearage as a separate debt and add it to your payment plan. The benefit is you can catch up on arrearages over three to five years. If you're behind on payments or fall behind after bankruptcy, the lender will use its lien rights to foreclose on the home. In many cases, if you're behind when you file, the lender will ask the court to lift the automatic stay to allow the lender to move forward with foreclosure.
It’s especially important to remember that if you have so much equity that you fall above the exemption amount, your bankruptcy trustee may choose to sell your home to pay back creditors. They’ll pay you back for any exempted equity following the sale, but you’ll have to find a new home. When you file Chapter 7, your existing property will be deemed exempt or nonexempt. Exempt means you’ll be able to keep the property throughout the bankruptcy process, as long as you can catch up and stay current on your payments. The bankruptcy trustee’s job is to sell non-exempt property for the benefit of unsecured creditors. Whether your home is safe from the trustee depends on whether it has any non-exempt equity which in turn depends on its market value.
If you do get to keep your home, make sure your payments stay current. Second mortgages and home equity lines of credit (HELOC) are also impacted by bankruptcies. If you have a second mortgage or HELOC, you’re not responsible for it under a Chapter 7 bankruptcy, but you’re required to keep paying on it if you want to keep the house without a problem. If you’re looking to apply for a conventional loan, it matters whether your bankruptcy was discharged or dismissed. In the event of a Chapter 13 discharge, the discharge date must be at least 2 years prior to the date credit is pulled and a minimum of 4 years since the filing.
If you have enough equity in your home to cover your first mortgage, plus some part of your partially secured home mortgage, the second loan will not be dischargeable. Keep reading to learn which chapters will help you overcome these qualification issues. If you'd like a primer on exempting equity first, skip to "Determining How Much Home Equity You Can Exempt."
If you can't afford the payment—and many people can't because nonexempt equity can drive up a monthly payment fast—you won't qualify for Chapter 13 bankruptcy. Keep good records if you try to get around this problem by selling assets before filing for bankruptcy. You can always sell property and use the funds for your expenses, but you should plan to turn over any remaining amount to the trustee.
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