Can You Keep Your House In Bankruptcy?
If you are a Rhode Island homeowner considering bankruptcy, you are likely worried about what happens to your house if and when you decide to file. For most people, the mortgage payment represents their largest monthly debt. But most people are willing to do almost anything to keep their home, even if their financial situation is dire.
One of the most common misconceptions about bankruptcy is that if you file for bankruptcy, you lose everything. This is a not true. There are many exemptions that allow you to keep your property and almost all homeowners are able to keep the house in a bankruptcy filing, as long as they meet the criteria detailed in this article. Remember, bankruptcy law was enacted to protect you and your assets.
Before we get into specifics, a word of caution. Do not let your preconceived notions or fears about bankruptcy stop you from speaking with a bankruptcy lawyer. The idea that people who file for bankruptcy will lose their home is just one example of many misconceptions about bankruptcy. When it comes to filing for bankruptcy, the sooner you speak with a qualified bankruptcy attorney, the better. The attorney will tell you what is and is not at risk BEFORE you file.
Avoiding the conversation can lead to things getting more out of hand and might even make it more difficult to keep your property. Once there has been a foreclosure there is not much a bankruptcy attorney can do to save it and filing a bankruptcy can stop a foreclosure even minutes before it occurs!
3 Things You Need To Keep Your House in Bankruptcy
1. You need to have no more than $500k in equity
You can keep your house in a bankruptcy when you have no more than $500,000 in equity in your home. There are several exemptions provided by both Rhode Island law and Federal law, and the Rhode Island Homestead exemption allows a homeowner to retain the house even after filing for bankruptcy. The specifics of your case will determine which exemption is the best for you.
Regardless of which exemption you choose, there’s a provision for protecting the equity you have in the house. Equity is the difference between what you owe on your house and what it’s worth. For example, if you owe $280,000 and your house is worth $315,000, the equity in your house is $35,000. Most people don’t have any where near $500,000 in equity in their home. If you do there are other options discussed further on.
As a general rule, you qualify for the Rhode Island homestead exemption and keep your house you must have $500,000 or less equity in your home.
2. Your mortgage payments need to be current
In most cases you can keep your house in a bankruptcy if your mortgage payments are current. Often, homeowners have trouble keeping up with monthly bills but continue paying the mortgage on time. One of the benefits of filing for bankruptcy is the protection you receive immediately after filing, referred to as an automatic stay.
This bankruptcy protection allows you to gain breathing room from harassing debt collection phone calls letters, so you can figure out how to proceed. If your mortgage is current and you would like to file for bankruptcy protection and still keep your home, you should continue to make your mortgage payments.
The automatic federal court injunction bars creditors from attempting to collect on debts you owe and provides a number of other protections. Under the automatic stay, you receive temporary protection prohibiting the following:
● Home foreclosure
● Vehicle repossession
● Utility disconnection
● Debt collection attempts including phone calls, letters, etc.
● Post-filing wage garnishments
● Bank levies
Generally, the automatic stay lasts from the time the bankruptcy petition is filed in court until the case is closed. When your bankruptcy is finalized any dischargeable debts are eliminated. This frees you from collection attempts for these debts and you can remain in your house and move on with your life.
3. Or, you can file a Chapter 13 Bankruptcy
If you don’t qualify for a Chapter 7 bankruptcy, have too much equity, or you’re behind in your mortgage payments you may still qualify for a Chapter 13 bankruptcy and keep your house.
In a Chapter 13 bankruptcy, you propose a repayment plan to the court that shows how you’re going to use your disposable income, freed up from having to keep your dischargeable debts current, to get the mortgage current instead.
The plan is for a set period of time and the payments first are used to get your late mortgage payments current. Then, after your mortgage is current the payments are then paid towards your other debts on a pro rata basis. When your payment plan period is over your mortgage will be current and some of your other debts will be paid down.
Whatever balances that are left on your unsecured, dischargeable debts will then be completely discharged, just as if you filed a Chapter 7. You can move on with your life, still in your house, caught up on your mortgage payments and free of the burdensome debts you discharged.
The fact is that in most cases, you can keep your house in a bankruptcy. Do not let the fear of losing your home prevent you from speaking with a bankruptcy attorney and figuring out how to regain control of your finances and your life. Bankruptcy might be the only thing that can save your home.
The sooner you contact an experienced bankruptcy attorney the better off you’ll be. Waiting until the last possible moment to file can result in a more complicated and more expensive case. And remember, once your house is foreclosed upon, meaning the auction has occurred, your house can’t be saved. But we can stop that. Even at the last minute. Let us help.
Contact Carl P. DeLuca, Attorney at Law, LLC, today for a free consultation.