Introduction:
The relationship between houses and bankruptcy is a complex and often challenging terrain to navigate. For individuals facing financial distress, the prospect of losing their homes can be particularly daunting. This article aims to shed light on the intricate dynamics between houses and bankruptcy, exploring the various aspects that individuals may encounter when grappling with financial difficulties.
Understanding Bankruptcy:
Bankruptcy is a legal process designed to help individuals and businesses struggling with overwhelming debt to restructure or eliminate their financial obligations. In the context of personal bankruptcy, there are two primary types: Chapter 7 and Chapter 13.
- Chapter 7 Bankruptcy:
In order to qualify for a chapter 7 bankruptcy, the debtor must not have filed a previous chapter 7 in the past 8 years. And then the debtor must pass the means test (this is based on the debtor’s family size and household gross income from the six months preceding the month of the bankruptcy filing). If a debtor qualifies for a chapter 7 and owns a house, then the debtor will need to obtain a comparative market analysis (CMA). I can refer you to a realtor for the CMA. Depending on the amount of equity in the house (i.e., the difference between the value of the house and how much is owed on the house) will determine whether it will be safe to file a chapter 7 without the risk that the chapter 7 trustee will try to sell the house (if there is too much equity in the house to safely file a chapter 7, then the debtor can choose to file a chapter 13 to obtain debt relief with zero risk of losing their house). Speaking with a local bankruptcy lawyer will be essential for the above analysis.
- Chapter 13 Bankruptcy:
Chapter 13 bankruptcy, on the other hand, allows individuals with a regular income to create a manageable repayment plan over three to five years. There is zero possibility that a debtor will lose their house (or any other asset) in a chapter 13 bankruptcy. If there is non-exempt equity in the house, then there may be a “best interest number,” which is a minimum amount that the debtor would need to pay during the three-to-five year chapter 13 plan. Also, a chapter 13 filing could allow the debtor to pay the pre-filing arrearage (pre-filing default) through a three-to-five year chapter 13 plan and/or give the debtor time to apply for a loan modification to deal with the pre-filing arrearage. This option enables homeowners to catch up on mortgage arrears and avoid foreclosure while addressing other outstanding debts. Filing for bankruptcy triggers an automatic stay, which halts all collection actions, including foreclosure proceedings. This provides breathing room for individuals to assess their financial situation and explore potential solutions. However, if a debtor is facing a foreclosure sale date, it is essential to reach out to a bankruptcy lawyer as soon as possible to discuss (do not wait until too close to the foreclosure proceeding to reach out to a bankruptcy attorney).
Conclusion:
Navigating the intricate relationship between houses and bankruptcy requires a thorough understanding of legal processes, exemptions, and potential outcomes. Seeking professional advice from an experienced Portland bankruptcy attorney is crucial for individuals facing financial challenges, as they can provide tailored guidance based on specific circumstances. While bankruptcy is a complex and challenging process, it is a very powerful tool that can serve as a lifeline for those seeking financial relief while striving to protect their homes. If you live in Oregon, we can schedule a free bankruptcy consultation via phone, Zoom, or in-office to discuss your specific situation and answer all of your questions.
