For many Michigan families, their home is their most valuable asset. It carries with it memories, dignity, and your sense of belonging, on top of the monetary value. When you fall behind on your mortgage and the threat of foreclosure is on the horizon, you may become desperate to find a way to reduce your debt and stay in your home. Is bankruptcy the answer? Can a Chapter 7 bankruptcy save your home?
In this blog post I will discuss how a Chapter 7 bankruptcy and mortgage collections efforts connect. I will review the effect of bankruptcy proceedings on the foreclosure process and explain how and when you can use a Chapter 7 Bankruptcy to save your home.
Debtors can use a Chapter 7 Bankruptcy to stop collection efforts and satisfy their debts. In the end, it provides a clean slate to debtors who need a fresh start. But that doesn't mean a Chapter 7 bankruptcy comes without consequences.
When you file a Chapter 7 bankruptcy, it is the job of the court-appointed trustee to sell off most of your family's non-exempt assets to satisfy your debts. When what you owe outweighs what you have, your creditors may have to settle for less than you owe. However, you will be giving things up too.
Going through bankruptcy isn't designed to leave you destitute or homeless. Michigan law allows you to hold on to certain assets through exemptions. That includes the Michigan Homestead Exemption, which allows you to save your home if you have up to $30,000 in equity, adjusted for inflation ($37,775 in 2018), or $45,000, adjusted for inflation, if you or someone in your home is over age 65 ($56,650 in 2018).
That means whether you can use your Chapter 7 bankruptcy to save your home depends on how valuable your home is, and how much you owe on it. If most of your home's value is wrapped up in a mortgage or home equity loan, you may fall within the homestead exemption and be able to save your home. If you haven't refinanced recently, or if you live in an area where home values are high, you may have more than the allowed amount of equity in your home, and the trustee may be required to sell it to satisfy your debts.
For some families, the fear that a trustee may sell your home takes a back seat to the worry that bank or mortgage company may start foreclosure proceedings. When you owe back payments on your mortgage, stopping collections efforts may be just as important as using a homestead exemption to save your home.
Filing a Chapter 7 bankruptcy puts all collections efforts on hold. This applies to mortgages as well as credit cards and medical debt. That means if your bankruptcy starts before the foreclosure proceedings you may be able to postpone resolving your mortgage debt until after your bankruptcy is finalized.
However, a Chapter 7 bankruptcy does not include a process to repay your back-owed mortgage payments. While other debts may be forgiven or satisfied through the bankruptcy process, you will walk away from your bankruptcy still owing payments on your mortgage. You will need to look at alternative strategies to resolve your mortgage debt and save your home.
If one of your priorities in bankruptcy is to save your home, Chapter 7 may not be your answer. When you have too much equity to qualify for the homestead exemption or owe enough that foreclosure is a real concern, you may have to consider other options.
Chapter 13 Bankruptcy can be an option for those who qualify. If you have a reliable source of income, a Chapter 13 bankruptcy repayment plan can help you pay down your past-due mortgage and avoid foreclosure. However, if you fail to comply with the 3 to 5 year repayment plan, your case could be dismissed.
There may also be non-bankruptcy options that will allow you to restructure or renegotiate your debt and save your home. Your bankruptcy attorney may be able to work with your bank or mortgage company to renegotiate your monthly payment or the terms of your mortgage to match your ability to pay. This can help you pay down your debt and avoid foreclosure, without the risks associated with a Chapter 7 Bankruptcy.
There is no easy answer to whether a Chapter 7 bankruptcy can save your home. Deciding which strategy is best for you and your family depends on your income, the equity you have in your home, your payment history, and your credit. At John A. Steinberger & Associates, P.C., we are a full-service bankruptcy law firm in Southeast MI. We serve debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. We can help you evaluate your situation and decide if a Chapter 7 bankruptcy is the right solution for you. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.