Foreclosures & Bankruptcy - Keeping Your Home

When filing for bankruptcy, the greatest concern of most people is whether or not they will be able to hold onto their home. Thus, the question we hear most is, "Will bankruptcy stop foreclosure and let me keep my home?"

The answer isn't so simple, because the two types of bankruptcy - Chapter 7 and Chapter 13 - are fundamentally different. Chapter 7 bankruptcy may be thought of as liquidation of assets to repay debt. Chapter 13 bankruptcy may be thought of as reorganization of debt.

Under Chapter 7 bankruptcy, a bankruptcy trustee will take possession of all non-exempt property for the purpose of selling that property to repay debts. Exempt property includes a portion of the equity in the debtor's home, but not the home itself. Under Chapter 7, the debtor may try to renegotiate their home loan, but - in most cases - only if the value of the home is less than the amount still owed.

Under Chapter 13 bankruptcy, the court may negotiate settlements to be satisfied by payments made to and distributed by the bankruptcy court. If you qualify for and get approval for a Chapter 13 bankruptcy, you will make payments to the bankruptcy court for as long as 5 years. That may or may not pay off all that you owe, but when the Chapter 13 plan is satisfied, any remaining debt would be discharged.

Secured loans, where property is forfeit upon failure to pay, typically results in transfer of ownership of property to the lender in lieu of payment. Mortgages are secured loans, and foreclosure is the legal act of transferring ownership to the bank. Bankruptcy stops that procedure, but only for a time. Lenders may ask the court for relief, and if granted, the "automatic stay" of attempts at debt collection no longer apply to the mortgage lender.

Under Chapter 7, the debtor's only recourse is to renegotiate the loan - but restrictions apply. The property must be of less value than the amount owed against it. The idea behind this is that if the home can't be sold to recover the amount owed against it, the mortgage lender may agree to renegotiate the terms of the loan and allow the debtor to stay in the home. If, however, the home is of equal or greater value than the amount owed, Chapter 7 bankruptcy probably won't keep you in your home.

Even so, Accounting World CPA & Consulting, PLC will help you and your attorney to stay in your home. We work closely with leading bankruptcy attorneys and mortgage lenders to find solutions that satsify all parties involved.