If you are considering personal bankruptcy, one of the first questions you may have is whether you can keep your home. The answer is often yes. Many New Jersey homeowners successfully file bankruptcy while continuing to live in their homes and make their mortgage payments.
Whether you can keep your house depends on several factors, including the type of bankruptcy you file, your mortgage status, the property's equity, and your long-term financial goals.
Can You Keep Your House After Filing Bankruptcy?
In many cases, homeowners who file either Chapter 7 or Chapter 13 bankruptcy are able to keep their homes.
If you are current on your mortgage payments and the equity in your home is protected by available exemptions, bankruptcy may have little effect on your ownership of the property. You generally continue making your mortgage payments as usual and remain responsible for the loan.
If you have fallen behind on your mortgage payments, bankruptcy may still offer options to help you avoid foreclosure and catch up on arrears.
What Happens to Your Mortgage in Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is designed to eliminate eligible unsecured debts such as credit card balances, medical bills, and personal loans.
A mortgage is different because it is a secured debt. The lender's lien remains attached to the property even after a bankruptcy discharge.
As a result, homeowners who want to keep their homes typically must continue making mortgage payments after filing Chapter 7. If payments stop, the lender may still pursue foreclosure even if the borrower's personal liability on the debt is discharged.
For homeowners who are current on payments and can comfortably afford the mortgage, Chapter 7 may provide significant financial relief by eliminating other debts and freeing up monthly income.
Can Chapter 13 Help Stop Foreclosure?
For homeowners who are behind on their mortgage payments, Chapter 13 bankruptcy often provides a powerful tool to save their homes from foreclosure.
When a Chapter 13 case is filed, an automatic stay immediately goes into effect. This generally stops foreclosure proceedings, collection actions, wage garnishments, and most creditor activity. Bankruptcy law provides these protections upon filing.
Under a Chapter 13 repayment plan, homeowners can spread past-due mortgage payments over three to five years while continuing to make their regular monthly mortgage payments.
This structure allows many homeowners to catch up on missed payments without having to come up with a large lump sum. If the repayment plan is successfully completed, the mortgage arrears are brought current.
For homeowners facing foreclosure in Monmouth County or elsewhere in New Jersey, Chapter 13 may provide the breathing room needed to regain financial stability.
How Much Equity Can You Protect?
Equity is the difference between your home's market value and the amount owed on the mortgage and other liens.
The amount of equity that can be protected in bankruptcy depends on the exemption system used in the case and the homeowner's overall financial situation.
A bankruptcy trustee's interest in a home generally increases as unprotected equity increases. By contrast, homeowners with little or no nonexempt equity are often in a stronger position to retain their property.
Because exemption planning can significantly affect the outcome of a case, it is important to carefully evaluate equity before filing.
Should You Keep Your Home During Bankruptcy?
Keeping a home is not always the right financial decision.
In some situations, a mortgage payment may have become unaffordable due to job loss, reduced income, divorce, medical expenses, or other life changes. Bankruptcy can provide an opportunity to evaluate whether retaining the property supports your long-term financial goals.
Questions worth considering include:
Can you comfortably afford future mortgage payments?
Is there significant equity in the home?
Are property taxes, insurance, and maintenance costs manageable?
Would surrendering the property help you achieve a stronger financial recovery?
The answers vary from person to person, which is why a thorough review of your finances is important before making a decision.
What Happens If You Want to Surrender the Home?
Some homeowners use bankruptcy to eliminate debt while voluntarily giving up a property they can no longer afford.
In these situations, surrendering the home may allow the homeowner to move forward without the burden of an unaffordable mortgage. Depending on the circumstances, bankruptcy may also help address certain deficiencies or unsecured debt obligations associated with the property.
For some individuals, this path provides a fresh financial start and an opportunity to rebuild.
Speak With a Monmouth County Bankruptcy Attorney
If you are considering bankruptcy and are concerned about your home, turn to The Cassidy Law Firm. We help individuals and families throughout Monmouth County and New Jersey evaluate Chapter 7 and Chapter 13 bankruptcy options. We can review your mortgage situation, explain how bankruptcy may affect your home, and help you determine the best course of action for your circumstances. Contact us today to schedule a consultation.