Filing for bankruptcy is a great way to get out of debt; however, you may want to plan this out carefully so that you do not lose your house. Through a Chapter 7 bankruptcy, the trustee can take some of your assets, but your debts will also be wiped clean. If you want to keep your house, here are three things you should know.
Getting a Mortgage After Bankruptcy Is Difficult
One of the reasons to fight to keep your house is because it will be very difficult for you to get a mortgage after you file. You may have to wait many years before your credit is good enough to get approved, and you may also encounter the problem of coming up with a down payment.
When you file for Chapter 7, you must be able to prove you are broke. If you have money in the bank or tax returns that are in the mail, the trustee can take these from you. The trustee may also be able to take:
- Compensation from a present lawsuit you are in
- Bonuses from your job
- Luxury items you own, such as a car or boat
Bankruptcy trustees look for any types of liquid assets filers may have, but they also look for big ticket items. They will not come to your home and take your clothes or personal belongings, but they will ask you many questions about your assets.
The goal of the trustee is to collect as much money as possible from you during this time. This money is used to repay debts that are forgiven during the bankruptcy process. If you can work out a plan to keep your home, you will not have to worry about getting a mortgage to buy another one, or finding a way to come up with a large down payment to buy another house.
The Trustee Bases the Decision on the Equity
According to the Law Dictionary, a trustee will only seize a person's house if there is equity. If the trustee sees that there is a way to make a quick sale on the house, and that the sale will result in extra money, the trustee may pursue taking the house. On the other hand, if there is no equity, the trustee will not waste the time seizing the house and selling it.
If you have very little equity, there should not be a problem with you keeping your house if you file for Chapter 7. If you have a lot of equity, talk to your attorney about reaffirming the debt.
You Can Reaffirm Debt
Reaffirming debts in a Chapter 7 bankruptcy is one available option you may have; however, this is not always possible. Reaffirming your house debt is something that you can do to keep your house. In return, you will agree to stay current on the payments you owe.
To do this, your attorney will send a letter of reaffirmation to your mortgage company. When they receive it, they will have the right to accept or deny it. If they accept it, your mortgage will not be included in the bankruptcy, and you will be able to keep your house as long as you continue to make the agreed-upon payments.
Another benefit of this is that you may be able to negotiate new terms on the loan with your lender. From your lender's perspective, it is easier to let someone keep a house if they can make the payments. If the lender is not willing to agree to this, the lender may end up with a greater level of risk because the borrower will likely default.
Before you file for Chapter 7, talk to an attorney from a site like http://www.kreislerlaw.com about this. Your attorney will be able to give you advise about it, and he or she may be able to tell you what the probable outcome will be.