In 2016, 296,655 individuals filed for Chapter 13 bankruptcy in the U.S.
Chapter 13 is a type of bankruptcy designed to help people systematically pay off their existing debt.
Unlike Chapter 7 bankruptcy, Chapter 13 does not require a liquidation of assets.
Filing for bankruptcy is no easy task, even if you are approved. It can be particularly tough for homeowners who are afraid of losing their home and other valuable assets.
Can you file chapter 13 and keep your house?
In this post, we answer this question and several others regarding home ownership and bankruptcy.
Read on for insight!
What is Bankruptcy?
Bankruptcy is actually a legal status. When you file for bankruptcy, you officially state that you aren’t able to repay your current debt to creditors.
Filing for bankruptcy is more common than most people realize. Nearly 800,000 people file for some kind of bankruptcy every year in the United States.
“Going bankrupt” doesn’t mean the end of everything, however. Nor does it send people out on the streets.
The process is actually designed to help individuals overwhelmed by financial obligations.
Bankruptcy can, for example, legally waive a person’s existing debt. It can also establish a debt repayment plan that works with someone’s current income.
There are different kinds of bankruptcy petitions. The one you choose will ultimately depend on your current income, assets, and outstanding debt.
In general, homeowners file either Chapter 7 or Chapter 13 bankruptcies.
Chapter 7 Bankruptcy
Individuals and businesses can file for this type of bankruptcy. Chapter 7 is also known as “liquidation” bankruptcy.
This is because the court may seize some of your property and sell these assets in order to pay off existing debt. There are limits to what can be sold, of course.
For example, your clothing and other personal belongings cannot be sold. Your house and your car, however, can be.
People approved for a Chapter 7 bankruptcy petition will be waived of all unsecured debts. You may also be able to negotiate repayment of secured debts by selling assets.
You do have to meet certain eligibility requirements to qualify for a Chapter 7 bankruptcy. A lot of these have to do with your income and the amount of your outstanding debt.
Chapter 13 Bankruptcy
Also known as a “wage earner’s plan,” Chapter 13 bankruptcy “reorganizes” your debt. It is designed to help people with reliable income effectively pay off their current debt.
If approved for a Chapter 13 bankruptcy, the court will come up with a repayment plan for your outstanding debt. Typically, you will have three to five years to pay off this debt to creditors according to the court’s agreement.
A lot of factors go into choosing this repayment plan. Your current income, for example, is a key factor. The same goes for the total of your unsecured and secured debt.
Not everyone qualifies for a Chapter 13 bankruptcy. Just like Chapter 7, this type of bankruptcy has specific rules when it comes to income and the amount of debt accrued.
The good news about Chapter 13 bankruptcy is that creditors cannot contact you will you are in repayment. This is called Chapter 13 protection. This can provide a lot of relief, especially if you are sick of creditors calling you night and day!
Homeownership and Bankruptcy
If you are a homeowner filing for Chapter 13, you are likely wondering what will happen to your house.
You are not alone. Everyone who files for bankruptcy fears losing their most valuable assets. These include houses, property, cars, and savings in the bank.
Homeowners & Chapter 7
If you are filing for Chapter 7 bankruptcy, your house may be seized and sold. This is because Chapter 7 bankruptcies are essentially “liquidation” plans.
Nonexempt property may be resold to creditors at their wholesale value to pay off your debt. However, whether or not these properties are sold depends on a lot of things.
It will depend, for example, on any equity you currently have in your house. It will also depend on your property value. If your property value is below a certain amount, it may not be eligible for seizing.
Yet your home could foreclose if you are not able to afford your mortgage payments.
This can be a frightening thought for homeowners! That’s why there are alternatives to seeking debt relief through bankruptcy.
It is possible to sell your home now, for example, to find debt relief. This is possible even if the foreclosure process is imminent.
Individuals who sell some of their current assets may not even need to file for bankruptcy.
You can also explore debt consolidation programs or filing for Chapter 13 bankruptcy.
Homeowners & Chapter 13
When you file Chapter 13 bankruptcy, you are filing for debt reorganization. People with the right income levels agree to the court’s repayment plan to pay off their current debt.
When you are approved for Chapter 13 bankruptcy, you won’t necessarily lose your house. In fact, most people who file Chapter 13 bankruptcy are able to keep their homes through the repayment process.
However, this comes with a lot of caveats.
Chapter 13 filers have to stick to all the terms of their repayment plan. In some cases, repayment plans can be pretty strict. Remember that most are designed to end within three to five years.
If you aren’t able to hold your side of the bargain, your house could go up for foreclosure. Chapter 13 homeowners are not protected from this reality, unfortunately!
In fact, you may find that after your repayment plan is over, you aren’t able to make those mortgage payments after all. This can be a dangerous moment for bankrupt individuals.
Can You File Chapter 13 and Keep Your House?
So, at the end of the day, can you file Chapter 13 and keep your house?
It depends. If you follow your repayment plan religiously, you will likely be able to keep your home. However, if you aren’t able to follow this plan or miss any payments, your home could be in danger of foreclosure.
We recommend thinking carefully about all of your options before filing Chapter 13 as a homeowner. More importantly, rather than risking home loss, it’s wise to consider selling your home before foreclosure occurs.
At Bonnie Buys Houses Fast, we can purchase your eligible home within seven to ten days. Learn more about this process now!
