Depending on your situation, there are advantages of Chapter 7 and Chapter 13. Let’s explore the differences between them and how Chapter 7 could help you keep your home. Remember: The Law Offices of Brad Woolley provide bankruptcy attorneys for those who wish to file in bankruptcy in Lafayette, IN.
If you are behind on your mortgage payments but you still want to keep your home, Chapter 13 bankruptcy offers adjustment of debts. This will allow you more time to get your payments in line and you might even be able to get rid of a second or third mortgage. This is also useful when it comes to property taxes, income tax liens, judgment liens, etc. These cases also last about 3-5 years.
However, Chapter 7 is sometimes enough for you to get your finances in line in order for you to keep your home. Let’s say you’ve fallen behind a few months in your mortgage and could make the payments if only you didn’t have other debts to pay off. Or perhaps you are not keeping the house and need more time before you can locate to another abode?
Well if this is the case, then you may not need a lengthy Chapter 13 case and Chapter 7 will help you out just fine. As we mentioned, Chapter 13 cases can last 3-5 years. Chapter 13 cases, of course, have their benefits. However, Chapter 7 cases aren’t nearly as lengthy and costly as Chapter 13.
Buying Time with Chapter 7
The "automatic stay" associated with bankruptcy stops all actions that creditors can take. This applies to both Chapter 7 and Chapter 13 cases. Therefore, if you file a Chapter 7 case, you can stop a foreclosure on your home. However, Chapter 7 does not get you as much time to deal with your mortgage debt as Chapter 13. With a Chapter 13 bankruptcy filing, you will have 3 to 5 years to catch up on payments. If you aren’t too many months behind and desire to keep your home, a Chapter 7 case might be a good option for you. Often, lenders will offer loan modifications that can bring you contractually current with your payments and re-amortize the loan at lower payments. You are required to start making payments immediately and enter into a strict schedule if you haven’t been making them. The lender will then allow you to keep your home as long as payments are being made.
If you will not be keeping your home and just need some time to save money so that you can move into a rental home, a well-timed bankruptcy filing can give you extra time in your house. You will not make mortgage payments during thing(s) time which allows you to get together some money for the first and last month rent payments. You can also get the time to save money for the move and other miscellaneous costs and fees.
Depending on how aggressive your lenders are, the time you can buy with Chapter 7 varies. There is no hard or fast rule for how much extra time you can get. With aggressive lenders, they can ask for "relief from the stay" and then the foreclosure would proceed. In this case, filing bankruptcy might get you another three months.
On the other hand, your lender may not take any action during the three months that your Chapter 7 case is going on. After three months, your automatic stay will expire and your lenders will then start or restart your foreclosure. When we had the mortgage crisis years ago, some people were living in their homes and not paying payments for up to two years! While that is unusual, it still shows that there is no hard or fast rule.
Most likely, your bankruptcy attorney has some experience with the lenders at hand and will have some knowledge on how aggressive they might be.
When you file a Chapter 7 case, you prevent potential liens from being placed against your home. This is very important. Filing your Chapter 7 case could make the difference between paying nothing and paying a debt in full.
For example, if you have an older IRS debt that qualifies for a legal write-off during your bankruptcy, you could potentially get rid of it. If you filed bankruptcy after the IRS recorded this tax lien, then that lien would continue being attached to you and your home despite the bankruptcy. You would, therefore, have to pay the debt in order to be able to sell or refinance your home.
Your automatic stay would allow the tax lien to be discharged if you file bankruptcy before the IRS records the lien. Then you wouldn’t have to pay it.
Discharge of Other Debts
One benefit of Chapter 7 bankruptcy is that it allows you to allocate your funds and finances towards your mortgage payments. This happens by discharging your other debts. If you have been able to keep up on your payments but are worried that you might not be able to do so long term (due to other debts), then you can get relief by discharging these debts. This allows you to stay in your home.
In summary, a Chapter 7 case works best if you’ve only missed a few payments and you can catch-up those payments while making the future payments after you’ve discharged your debts. A Chapter 13 case works better for you if you will not be successful in quickly curing your default and making future mortgage payments. Remember, Chapter 13 bankruptcy can give you up to 5 years to get your mortgage payments current while paying no interest on the late payments.
You should always discuss your options with your bankruptcy attorney and be up front with them so that you can find the best answer for your situation.