If you are facing financial challenges, you may be considering filing for personal bankruptcy protection. If you want to keep your home, though, you may be uncertain whether you should file a Chapter 7 or a Chapter 13 petition. While a Chapter 13 is, in most instances, the best approach for restructuring your debt and keeping your residence, there are some instances in which you can use a Chapter 7 petition to protect your home.
The Exemption on the Equity in Your Home
In a Chapter 7 bankruptcy proceeding, a bankruptcy trustee is empowered to sell certain nonexempt assets in exchange for your receiving a permanent discharge of most debts. As part of your “fresh start” in bankruptcy you are allowed to keep for yourself certain assets up to permitted values. (In New Jersey bankruptcies, the federal bankruptcy exemptions are available and are almost always the ones selected by debtors). The trustee looks at a hypothetical sale to calculate what amount of money if any will be available after selling the home, paying the broker and other costs of sale, paying off any mortgages and unpaid real estate taxes, paying his own commission, and paying you the amount you have claimed as exempt. The remaining money for creditors is the “non-exempt equity”.
If there is nothing left for creditors, the trustee will “abandon” the residence by a Notice in the Bankruptcy Court. This abandonment is good for debtors. It means that the trustee is giving them back the property as being of no value to the Trustee.
This is the goal most debtors have. To achieve it, having some reliable proof of value to provide the trustee (and for you to know what the home is really worth) is essential. Just as important, however, is to have a current statement showing the balance due on each mortgage. An experienced and qualified bankruptcy attorney will know how to determine if your home is at risk and to help you protect it if a bankruptcy is needed.
In Chapter 7, another option if the home has too much value, may be to “redeem” the home by paying the trustee, from family loans, retirement funds, or other monies that the trustee has no right to. The amount the trustee will accept will be based, usually, on what would be left in a sale by the trustee.
In these situations, however, a Chapter 13 filing may be the better option. There, you can pay creditors the “equity” they would have gotten from a Chapter 7 trustee by payments over 3 to 5 years. The details of this and which is the better option are too complicated for discussion here. These are matters to take up with an experienced and qualified bankruptcy attorney.
You can still lose your home to foreclosure, even if the Chapter 7 trustee concludes he or she doesn’t want to sell it. The trustee may give up his claim to it, but the mortgage lender can still foreclosure, either after you receive a discharge or after the lender gets an order for “stay relief”. In these situations, Chapter 13 may be the better option. In Chapter 13, you can bring the mortgage current through an approved plan. An option if you want to keep your home is to obtain a personal loan or use retirement funds (which are exempt from bankruptcy) to pay the trustee the amount that would have been received in a sale of the house on the open market.
For many people who are struggling to pay their bills including their mortgage, a Chapter 7 bankruptcy can help them keep their home by freeing them from the burden of paying credit cards or other debts so that more of their available money is left to pay a mortgage.
All these considerations are heavily dependent on the facts of your individual situation. Getting early advice from a qualified and experienced bankruptcy attorney is essential. Early planning can make all the difference in the world.
Contact Our Office
At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.
Representing Clients Across South and Central New Jersey