What About My House?

In the current economic times, it is quite common to use a Chapter 7 Bankruptcy to surrender all real property and simply walk away from a house. This is a good alternative if you do not have the ability to pay your mortgage and the fair market value of your property is less than what you owe. If you choose to surrender your real property in bankruptcy, the loans associated with the property are extinguished. This holds true even if you have more than one property.

In a Chapter 7 Bankruptcy, you may keep your primary residence if you can stay current on your payments and the amount of equity in the home is below the appropriate level. If you have owned your primary residence for less than 1,215 days you can retain up to $125,000 in equity. If you have owned your primary residence for more than 1,215 days you may retain up to $550,000 in equity. This protection is due to the “homestead” laws. As such, this protection only applies to your primary residence and not a second home, investment property, or vacant land.

Owning multiple properties may also affect your ability to file a Chapter 13 Bankruptcy. Currently, you may be eligible for a Chapter 13 Bankruptcy if you do not have more than $1,081,400 of secured debt (i.e. real property mortgages, car loans, etc.) and not more than $360,475 in unsecured debt (i.e. credit cards). We have seen instances where people have too much debt to qualify for a Chapter 13 under these guidelines.

Assuming that you do qualify for a Chapter 13 Bankruptcy, you may be able to completely eliminate the 2nd mortgage of your primary residence if the fair market value is less than the amount due on the first mortgage. This effectively causes the 2nd to become unsecured and, therefore, it can be removed.

Also, if you are late on your mortgage payments and wish to keep your home, you can include the past due payments in your Chapter 13 payment plan. Under a Chapter 13 Bankruptcy, you will have to make the regularly scheduled mortgage payments in addition to your Chapter 13 plan payments.

Finally, if you cannot qualify for a Chapter 13 Bankruptcy because you exceed the debt limits, on either secured or unsecured debt, you may be able to file for Chapter 11 or Chapter 7 relief instead. Please contact Christopher Legal Group for a personalized analysis of your particular situation.