20 Ways Bankruptcy Helps You Keep Your Home
Sept. 18, 2017
If you are at risk of losing your home, bankruptcy can help you keep it through a wide variety of ways. Many of these likely apply to you.
Here are 20 ways that filing bankruptcy can make it possible for you keep your home:
If you have equity in your home you can protect that equity through the homestead exemption. If you don’t currently have any equity in your home the homestead exemption can protect future equity.
If you have more equity than the homestead exemption protects, filing Chapter 13 can protect that extra equity. See Section 1325(a)(4) of the U.S. Bankruptcy Code.
Discharge—legally write off—all or most of your other debts so you can reasonably afford your monthly mortgage payments. See Sections 727 and 1328 of the Bankruptcy Code.
If you are only a little behind on your mortgage, discharge your other debts through Chapter 7 “straight bankruptcy. That could enable you to catch up on your missed mortgage payments through a forbearance agreement with your lender. That gives you a certain number of months to catch up through agreed monthly catch-up payments.
Get up to 5 years to catch up on your back mortgage payments though a Chapter 13 “adjustment of debts.” Throughout that time you’re protected from foreclosure as long as you follow some sensible rules.
Discharge or reduce other debts to possibly qualify for a mortgage modification.
Stop a property tax foreclosure by paying the unpaid property taxes through a Chapter 13 plan. This also prevents your mortgage lender from using your nonpayment of the property tax as a basis for its own foreclosure.
Significantly reduce how much you owe on your home by “stripping” off the second or third mortgage from your title. If you qualify, you can immediately stop paying that second or third mortgage payment. You can often pay only pennies on the dollar of that mortgage debt. By stripping off that junior mortgage debt from your “underwater” home, you bring the amount of your home debt closer to the value of your home. As a result you create future equity in your home much sooner as the home’s value increases.
Remove a current judgment lien encumbering your home’s title by “avoiding” that lien under either Chapter 7 or 13. Section 522(f)(A).
Prevent future judgment liens against your home. Stop pending lawsuits by creditors through the “automatic stay,” imposed on creditors the moment you file bankruptcy. Section 362(a)(1). Discharge credit card, medical, and other debts through bankruptcy before those creditors sue you. That stops them from ever getting a judgment and recording a judgment lien on your home.
Prevent the recording of an income tax lien on the title of your home. Section 362(a)(4 and 5).If you owe an older and otherwise qualifying tax debt, discharge that tax debt. Do this before the IRS or state taxing agency records a tax lien. Then it will never be able to do so.
Possibly persuade the IRS/state to release a prior recorded tax lien on your home arising out of a dischargeable tax. After the tax debt is discharged, if there’s no equity available now or in the reasonable future, the IRS/state may voluntarily consent to release the lien.
Deal favorably with an income tax lien on your home, even if the underlying tax is too new to discharge. Pay that “priority” debt under very favorable terms in a Chapter 13 plan. Section 1322(a)(2). Do so while being protected from all collection efforts against you on that tax. Then at the end of the case the IRS/state releases that tax lien on your home.
Prevent a child or spousal support lien from attaching to your home. Do so by discharging your other debts so that you can afford to keep current on your support obligations.
Prevent an existing support lien against your home from being foreclosed. Catch up on your support obligations through a Chapter 13 payment plan. This gives you as much as 5 years to do so, all the while being protected from that foreclosure.
Stop your homeowners’ association from foreclosing on your home for unpaid association dues and/or assessments. Again, you have as much as 5 years to pay those off through a Chapter 13 plan. And in the meantime the HOA can’t foreclose or take other collection action.
Get more time to sell your home. Get either a few more weeks or months through Chapter 7. Possibly get much more time, maybe even up to 5 years, through Chapter 13.
In a dispute with a home repair or remodeling contractor, if he or she attaches a construction lien to your home, stop the lien’s foreclosure. Gain leverage and buy time in fighting the dispute by filing a Chapter 13 case.
Resolve utility liens and local governmental liens on your home. Either dispute them or pay them through a Chapter 13 case.
Resolve accounting disputes with your mortgage lender by objecting to its proof of claim filed at the bankruptcy court. This court is a relatively favorable and efficient forum for cleaning up these frustrating disputes.