Using Bankruptcy to Save a Home

Bankruptcy is used as a last resort to save a home from foreclosure.  Bankruptcies are filed in Federal court.  There are different jurisdictions that handle bankruptcy filings for each state.  For the district closest to you, you can refer to the U.S. Bankruptcy Court website.

Also states such as Florida, Texas, Iowa, South Dakota and Kansas have homestead bankruptcy protection laws that protects the debtors primary home. When the debtor files for bankruptcy, the lender may not foreclose upon the home.  Also there are other protections of debtor’s assets including jewelry and personal effects, automobiles and pension plans, depending upon the laws of the state where the debtor resides. 

The goal of a bankruptcy is to give the debtor a fresh start to clear their debts and start over without pressure from creditors. Bankruptcies stay on your credit report for 10 years from the final discharge date.

Consult with a Financial Advisor

You should consult with a bankruptcy attorney, accountant or your financial advisor first to make sure this is the best option for saving your home.

Chapter 7, Chapter 11, Chapter 12 and Chapter 13

The most common bankruptcy filings are Chapter 7, Chapter 11, Chapter 12 and Chapter 13.

Chapter 7 filing is used by individuals with little or no assets.  All debts are discharged in a Chapter 7 filing.

Chapter 11 is used by corporations and businesses to reorganize and create a payment plan to pay off creditors. The creditor usually settles for a lesser amount than is owed on the debts. The business is allowed to operate during the proceeding of a Chapter 11.

Chapter 13 is a reorganization plan used by individual debtors similar to Chapter 11. This plan is used for debtors who have assets and are able to work out a payment plan to pay off their creditors.  This plan allows the debtor to keep their primary residence, their car and some other personal assets needed for their everyday living.  So if you own a primary residence,  Chapter 13 protection may be the best protection for you to keep your home.  Your bankruptcy attorney will advise you of your best options. Also, certain states such as Florida offer homestead exemption protection against creditors.

Chapter 12 is similar to Chapter 13 and is used by farmers or fisherman. Chapter 12 allows the farmer or fisherman to continue to operate their business during the proceedings and reorganization.

Bankruptcy Proceedings

In order to start a bankruptcy proceeding, a petition is filed in Federal Bankruptcy Court. In a Chapter 7, the debtor usually does not have to meet with the court unless a creditor objects to the filing.  Typically, the only formal proceedings in a bankruptcy is when the debtor and creditors meet at the U.S. Bankruptcy Trustee’s office for a  341 meeting so that the creditors can ask the debtor questions. 341 is the Bankruptcy Code section that requires all debtors to attend this meeting. 

A Chapter 7 bankruptcy proceeding takes a few months and is usually wound up and discharged quickly.  A Chapter 13 proceeding takes longer because the payment plan is usually over a 3 -5 year period so it can take anywhere from 36 to 60 months to complete.  A Chapter 11 can take a few months to several years. A Chapter 12 can take 36 to 60 months to wind up.

Bankruptcy Proceedings Stop Foreclosure Against Your Home

When a debtor files for bankruptcy protection, all creditors are notified and may not proceed with collection against the debtor. A lender may not foreclose upon a property where the debtor has filed for bankruptcy protection. Any current foreclosure proceedings are halted. It is up to the Bankruptcy Court and Bankruptcy Trustee to decide the disposition of all assets, including the primary residence.  Depending on which Chapter of bankruptcy a debtor files protection under, the debtor/borrower may be able to keep their primary residence after the bankruptcy is discharged.

• If you are in the process of Foreclosure or may be facing Foreclosing soon, Submit your Case for a Free Review from a Foreclosure Attorney in your area to be aware of your options.

Content Related to Topic

• Bankruptcy may Allow you to Keep your Home
  In certain cases, debtors that file for bankruptcy are permitted to keep their home.
• Foreclosure Avoidance Options
  There are quite a few different prevention and even foreclosure delaying methods.
• Evaluating your Liabilities before Foreclosure
  Before you decide to file for bankruptcy or foreclose, you should carefully evaluate your liabilities.