If you are planning to file for bankruptcy relief and you own a home, you are probably wondering what will happen to your real estate in your case. Bankruptcy law provides protections for certain types of assets, including your home. These laws are commonly referred to as “exemptions” and they remove the exempt asset from being included in your bankruptcy estate. To learn more about exemptions, please contact the legal team at The Law Office of Diane Anderson.
You might be surprised to learn that your real property can actually be positively impacted by your bankruptcy filing. Consider the following:
If you have more than one mortgage on your home, you may be able to take advantage of a very powerful tool called “lien stripping.” If you owe more on your first mortgage than your home is worth, you are “underwater” on your home. This means that there is insufficient value to support the second or third mortgages. As a result, a Chapter 13 debtor can seek to treat the inferior mortgage as an unsecured debt. In most cases, unsecured debtors are paid pennies on the dollar owed (if anything at all!) in a Chapter 13 plan.
In certain cases, a debtor in bankruptcy may be able to negotiate a cramdown of his or her loan. This means the mortgage lender agrees to reduce the interest rate or re-amortize your loan. Negotiating better loan terms could significantly lower your monthly payment and allow you to keep your home.
When a debtor is underwater on their home, it may be wise to consider surrendering it to the lender. Surrendering your home in a bankruptcy case allows you to discharge the debt you owe on it. In other words, you are not liable to repay the deficiency balance that is left remaining after the foreclosure is completed. Your mortgage lender must consider the surrender of the home as payment in full.
Chapter 13 bankruptcy is not an indicator of failure. In fact, it is actually a method by which you can lay the foundation for a better, brighter financial future for you and your family.