If you own a house, chances are real good that your home loan is your largest debt – maybe even larger than all your other debts combined. It makes sense that people who have to consider Bankruptcy are very concerned about what will happen to their home. The most common question is whether they will lose their home after filing for Bankruptcy. Another common question is whether a Bankruptcy filing will wipe out their home loans. The answer to this question is …. it depends. It usually depends on the simple question of whether you want to discharge the debt.
In Chapter 7, unless you reaffirm the home loan, you get a discharge of the loan just as you do your credit card debt, medical bills and other debts. That means your personal liability for that debt is wiped out forever. That does not mean you get a free house, as we are occasionally asked. The lien remains on the property and the lender has the choice of foreclosing or allowing you to remain in the property as long as you keep making voluntary house payments. If you make payments long enough, the debt will be paid and then you will own the house free and clear, as if you never filed for Bankruptcy. You may also want to refinance or modify your loan. The important detail is that lenders would rather have your money than your house. On the other hand, if you realize a couple years after your case is over that you just cannot afford the house or you have to move for your job, you can simply walk away from the house and let the lender have it. The lender will sell the house in a foreclosure sale, but cannot come after you for any deficiency because it was discharged. If you are in a few states that allow it, you may be eligible to strip a junior lien in a Chapter 7 and get a discharge of that loan.
In a Chapter 13 case, you typically will continue making your monthly house payments and, in addition, making up any past due payments in the Chapter 13 Plan. When you emerge from Chapter 13, you will not typically get a discharge of the home loans if you want to keep the house. However, if you realize it makes more sense for your future to find less expensive housing, you can surrender your house and get a discharge of the home loans along with your other debt. If you are eligible to strip a junior lien from the house, you get a discharge of that debt and the lien is permanently removed.
When considering Bankruptcy, it is very important to sit down with a good Bankruptcy lawyer and review the status of your home loans, the value of your house, your current and future income and your future housing needs. Your home is probably your most valuable asset, and the highest debt. However, your future financial security is just as, if not more, important. If you need to file a Bankruptcy case, make sure you consider the present and the future and take the appropriate steps in the case. A good lawyer will spend considerable time with this in an initial consultation. Contact a lawyer here, or find a good lawyer in your area.
- Will the Trustee Sell My House?
- Should I Reaffirm My Home Loan?
- Should I Keep My House After Bankruptcy?