Keeping Your Home And Car When Filing For Bankruptcy

Filing for bankruptcy can be a challenging decision, especially when you’re concerned about losing essential assets like your home and car. Fortunately, both Chapter 7 and Chapter 13 bankruptcies offer provisions that can help you retain these crucial possessions under certain conditions. Here’s a detailed guide on how you can keep your home and car when filing for bankruptcy:

Chapter 7 Bankruptcy

1. Exemptions:

• Homestead Exemption: This exemption allows you to protect a certain amount of equity in your home from being used to pay off creditors. The amount varies by state. For instance, the federal homestead exemption is $27,900 as of 2023, but many states have their own limits, which can be higher or lower.
• Vehicle Exemption: Similar to the homestead exemption, there are exemptions for vehicles. The federal exemption allows you to protect up to $4,450 of equity in your car. Again, state exemptions can vary significantly.

2. Reaffirmation Agreements:

• Reaffirming Debt: In Chapter 7, you can choose to reaffirm your car loan or mortgage. This means you agree to continue making payments on these loans despite the bankruptcy discharge. By reaffirming the debt, you can keep the asset as long as you remain current on your payments.

3. Redemption:

• Redeeming Property: Another option in Chapter 7 is to redeem the property. This involves paying the lender the current market value of the car or home in a lump sum, which can be challenging but may be feasible with the help of a loan from family or friends or a bankruptcy-specific lender.

Chapter 13 Bankruptcy

1. Repayment Plan:

• Catching Up on Arrears: Chapter 13 allows you to create a repayment plan that spans three to five years. This plan includes catching up on past-due mortgage or car loan payments. As long as you adhere to the repayment plan, you can keep your home and car.
• Cramdown: In some cases, particularly with vehicles, you might be able to reduce the principal balance of the loan to the vehicle’s current market value if the loan is more than 2.5 years old.

2. Continued Payments:

• Regular Payments: You must continue making your regular mortgage and car loan payments on time in addition to the payments under the repayment plan. This ensures that you do not fall further behind and risk foreclosure or repossession.

Strategies for Both Chapter 7 and Chapter 13

1. Equity Assessment:

• Assess Your Equity: Determine how much equity you have in your home and car. If the equity exceeds the exemption limits, consider whether Chapter 13 would be a better option, as it offers more flexibility in handling non-exempt assets.

2. State vs. Federal Exemptions:

• Choosing Exemptions: Evaluate whether to use federal or state exemptions, if your state allows this choice. Depending on your state’s laws, one set of exemptions might be more favorable than the other.

3. Loan Modifications:

• Negotiate with Lenders: Before filing, try to negotiate loan modifications with your mortgage lender or car loan lender. Sometimes, lenders are willing to adjust terms to avoid the loss associated with foreclosure or repossession.

Considerations and Resources

1. Legal Advice:

• Consult an Attorney: It’s highly recommended to consult a bankruptcy attorney. They can provide specific advice based on your financial situation and state laws. They can also help you navigate the complex bankruptcy process and ensure that you maximize your exemptions and protect your assets.

2. Financial Planning:

• Budget and Plan: Develop a realistic budget to ensure you can make both your regular payments and any additional payments required under a Chapter 13 plan.

3. Credit Counseling:

• Required Counseling: Both types of bankruptcy require you to complete credit counseling before filing and a debtor education course after filing. These courses can provide valuable insights into managing your finances and avoiding future financial problems.

By understanding the mechanisms and protections available under both Chapter 7 and Chapter 13 bankruptcy, you can take informed steps to retain your home and car while achieving financial relief.

 

Chapter 7 Bankruptcy