Bankruptcy can be a challenging process, and the prospect of potentially losing your home can make it even more stressful. Thankfully, even when it feels like your back is firmly against the wall, you have plenty of options.
The question is, do you know what these options are so you can take advantage of them?
Bankruptcy and Home Protection: An Overview
Bankruptcy is a formal legal process that exists to help people (and businesses) manage overwhelming debt that they’re unable to pay back. And while it can be an amazing tool – offering relief and a second chance at life – there are also some factors that make it less appealing. The thought of losing your home is one of them
If you’re planning to pursue bankruptcy as an option, you have to understand what’s at stake. While it’s true that you might have to forfeit your house in bankruptcy proceedings, there are other types of bankruptcy that allow you to protect your home.
There are different categories of bankruptcy. The most common ones are known as Chapter 7 bankruptcy and Chapter 13 bankruptcy.
With Chapter 7 bankruptcy, your assets are liquidated in order to repay debts. But with Chapter 13, you set up a structured repayment plan over a specific period of time. When considering which type of bankruptcy to pursue, you have to assess how it impacts your home.
With Chapter 7, any non-exempt asset can be sold to repay your creditors. This may include a portion of your home’s equity (which could force you to sell). However, there are such things as “exemptions.”
Exemptions are legal provisions that allow you to retain specific assets during bankruptcy. These exemptions vary between federal and state laws. Federal bankruptcy exemptions provide a baseline level of protection, including a homestead exemption that safeguards a certain amount of equity in your home. However, some states have their own bankruptcy exemption laws, which may offer additional protections or different criteria.
Make sure you understand which state-specific exemptions exist in your state. Once you have a clear understanding, you can make decisions that allow you to maximize your protections.
Practical Steps You Can Take
When facing bankruptcy, there are proactive steps you can take to safeguard your property and other assets. Here are a few suggestions:
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Consult With a Bankruptcy Attorney
A bankruptcy attorney can be an invaluable asset as you move through this process.
“Bankruptcy may feel like financial quicksand, but with the right knowledge, it's more like a game of chess,” attorney Rowdy G. Williams explains. “Knowing how to maneuver your assets, especially your home, can be the difference between keeping valuable assets and losing them to your creditors.”
A bankruptcy attorney can help you understand the implications of bankruptcy on your home, explore available options, and guide you through the necessary legal procedures.
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Utilize Chapter 13
With Chapter 13, you don’t have to give up a bunch of your assets. (And you might not have to liquidate anything.) Ask your attorney whether this type of bankruptcy is an option. You’ll need to develop a structured repayment plan that’s organized over a period of three to five years. This gives you the breathing room you need to catch up on missed mortgage payments and avoid foreclosure.
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Negotiate With Creditors
Did you know that you can negotiate with your creditors and lenders outside of bankruptcy proceedings? This may include things like modifying loans, seeking out forbearance, or even refinancing debt to lower rates. When you work directly with your creditors, you’re often able to get more favorable terms.
Not sure how to proceed? Consult with a qualified financial advisor or housing counselor to explore these options and determine the best course of action. They might even be able to negotiate on your behalf.
Adding it All Up
The thought of filing for bankruptcy can be scary and overwhelming. It’s stressful not knowing what the future holds. But if you proactively address the situation, rather than hiding from it and letting it compound over time, you can get out from underneath this burden and find freedom ahead. But at the end of the day, it’s up to you to do something about it!
