People who want to stop foreclosure fast may choose to file bankruptcy. This is a federal process that allows people to get out from credit card debt while still retaining ownership of their home. Even though there are many options to filing bankruptcy to stop the foreclosure process, many people may choose bankruptcy when faced with losing the equity in their home.
The Homestead Exemption
To stop foreclosure fast, filing for bankruptcy allows debtors to protect the equity in their home through a homestead exemption. The amount allowed for a homestead exemption is limited to $125,000 if the homeowner acquired the property within a certain timeframe, usually a period of 1215 days before filing for bankruptcy protection. When a homestead exemption is granted, state law determines the amount of equity that you can protect through bankruptcy. Some states allow a large or unlimited exemption, while others have no exemption whatsoever. Fortunately, there are only four states that don’t allow for homestead exemption, and they are:
- Delaware
- Maryland
- New Jersey
- Pennsylvania
The only one that allows an unlimited homestead exemption is the District of Columbia. The rest have homestead exemptions based on equity or lot size or the combination of both. However, if you owe back taxes or there is a mechanic’s lien on your property, your home can be sold to satisfy these debts.
When Choosing Bankruptcy May be the Best Option
When an individual files for federal protection under Chapter 7 or Chapter 13 bankruptcy, the court will issue what’s called an “Order of Relief”. Commonly known as an automatic stay, this means that all creditors must cease their collection activities immediately. The sale of your home, if scheduled for foreclosure, will be postponed while the bankruptcy is pending. Under a Chapter 13 plan, you will make your mortgage payment each month, along with additional monies to pay off the arrearages. If you fail to make a payment, the lender can ask the court to lift the stay and start the foreclosure process all over again. Individuals who file for Chapter 13 bankruptcy agree to pay off all of their debts under a repayment plan, usually spanning from three to five years.
If you choose to file a Chapter 7 bankruptcy, all of your unsecured debts, such as credit card debts, are discharged. With regards to secured debts, you may be able to keep your property by reaffirming the debt. A home with a certain amount of equity may be exempt from foreclosure. If your home equity exceeds the exemptions provided under the federal or state law, you may be in jeopardy of losing the home. Debts that you elect to reaffirm will not be discharged under the bankruptcy. However, if a debtor wants to reaffirm a specific debt, they must obtain approval from the bankruptcy court. Real property, such as houses or cars, is viewed as a “secured debt”. When you reaffirm the debt, you make a promise to the lender to make the monthly payments. When you file a Chapter 7 bankruptcy, all of your unsecured debts are discharged which will leave you with more income to pay secured debts, such as a mortgage payment or auto loan.
How a Lawyer Can Help
If you are a homeowner facing foreclosure, your options may be limited due to your current financial circumstances. In some cases, individuals may find themselves in a temporary economic crises due to job loss or a recent divorce. When you have equity in a home, you don’t want to lose this through foreclosure. Unfortunately, many people may have to file bankruptcy in order to save their home. Whatever your circumstances are, you should consult with an attorney who specializes in this area of law before making a decision.
