To momentarily (but not permanently) stop a foreclosure of your Indiana home, both kinds of consumer bankruptcy will do the job. The task is to find which type of bankruptcy will be better for you in the long-term.
The Condensed Answer for Foreclosure in Indiana
Before you file bankruptcy, you first need to examine the situation that you are in. Are you current or late making your mortgage payments. A Chapter 7 case is acceptable if you are certain you wish to keep your home and not more than 1 or maybe 2 months late on your mortgage payment. This case has the potential to let you catch up on your late house payments as quickly as possible. The problem with filing a chapter 7 bankruptcy is that your mortgage company does not have to give you time to catch-up the late payments. If this is not what you need, a Chapter 13 will give you more time.
An Individual Decision
Saving your home is an important goal in the bankruptcy process, but it is still only one element of your unique situation. Choosing Chapter 7 or 13 bankruptcy is truly dependent on your individual situation.
For example, the condensed answer needs additional explanation to fully be understood as an option for homeowners. While there is no hard-and-fast rule, it is common for mortgage holders to allow a Chapter 7 homeowner to pay an extra payment each month for a few months up to a year to get caught up on payments. A forbearance agreement will often be discussed and set up to establish monthly payments that are large enough to allow the homeowner to catch up a small default. These payments are more than the monthly mortgage payment and sometimes are too high to pay while still servicing your regular monthly payments. If you pay the extra money it will help to return the account to normal in about less than a year. Most of my clients are not able to pay these high payments.
You should always try to get a mortgage modification when you are struggling to keep current with mortgage payments. I have seen loan modifications be approved before, during and after a Chapter 7 and Chapter 13 bankruptcy filing. A loan modification can actually reduce your payment terms or bring your mortgage contractually current. In Indiana we have the Indiana Foreclosure Prevention Network that can assist you in this process for free.
When is Chapter 7 Bankruptcy Better?
(Always risky when behind in payments)
While a Chapter 13 is more likely to save your home, there are circumstances under which the quick timeline of Chapter 7 bankruptcy might be enough:
- You have no time left with a scheduled foreclosure, but there is a pending sale on your home and you need extra time before having to move out
- You have run out of time with a foreclosure, but you have money on the way to help pay your debt
- Your mortgage modification is close to approval, or will be closer after filing bankruptcy
- You are prepared to surrender your Indiana home, but you need more time before moving
What makes Chapter 13 Great?
It allows you up to five years to make up your defaulted or late mortgage payments while accruing no interest on the late amounts. Sometimes a homeowner will file Chapter 13 just to allow them time to list their home and sell it at a better time for higher market value or just stay in the home awhile longer to satisfy a family need. Sometimes, an elderly couple may file Chapter 13 because one of them has terminal cancer and they want to live together in their home together instead of a nursing home. After the sick spouse passes away, the surviving spouse can then choose to keep, sell, or surrender the home based upon the surviving spouses income. A good bankruptcy attorney can easily counsel you on what will work best for your situation.
Chapter 13 can also be a better choice for handling debts such as property taxes, second mortgages, income taxes, and even some liens.
Chapter 13 presents another quirk because it offers the option of stripping a second mortgage, or removing a lien from your home altogether. While presenting a faster process, a Chapter 7 does not allow for this option. Even if you could keep up with the timeline of a Chapter 7, the money saved by stripping the 2nd or 3rd mortgage would presumably be a better choice.
So How do I Choose Between Chapter 7 and Chapter 13 Bankruptcy?
There are many factors to consider when deciding to file a Chapter 7 or Chapter 13 lien, and this blog only scratches the surface. To make an educated decision, a bankruptcy attorney is needed to help you make the right decision for your individual situation.
For more information on Chapter 7 and Chapter 13 filings, contact the Law Offices of Brad A. Woolley for help!