Many people believe that if you file bankruptcy, you will lose your home, but there are ways to keep your home and even reduce your mortgage payments when you file. So if you’re struggling with your monthly bills, don’t write off bankruptcy as a possible option for you.
Having an experienced bankruptcy attorney help you will mean that you won’t miss out on exemptions that are available to you through the Federal Government. We can use the homestead exemption to help protect your property as your primary residence. Unfortunately, this exemption does not apply to investment, rental or commercial properties; only your primary residence.
Chapter 13 is often a great choice for people who want to keep their homes. In fact, we may be able to take advantage of a mortgage cramdown, which could lower the balance on your loan. The court will set the interest rate on this new loan, which is usually prime plus a small percentage. If your property is worth less than your mortgage, it is possible that we could “cramdown” or reduce your mortgage balance to the actual value of your property. If that is the case, we would then convert the amount exceeding your property value to unsecured debt. When we set up your payment plan, unsecured debt is the lowest priority for Chapter 13 payments, and you may end up paying very little or nothing at all. When your payments end after 3-5 years, most of the unsecured debt is simply discharged.
If you end not being able to pay your mortgage payments and go into foreclosure, the mortgage cramdown can protect you from being responsible for excess debt if you owe more than your home is worth.
The downside to using the cramdown option in your Chapter 13 is that you have to pay off the entire balance during your repayment period, which will mean very large payments over a short period of time. Most people are not able to make the payments, and that keeps them from being able to take advantage of this benefit. Some creditors are willing to work with you and will allow you to make a large balloon payment at the end of your loan, however, you will need to show that you are able to make that payment. If you have other properties that you can sell, it might make this option viable, however, we will need to talk over the details. Cramdowns are generally uncommon, but an option worth discussing.
Preparing for the Future
The future may look bleak, and you may have very real fears about being able to keep your home. Bankruptcy is an option where you can get a fresh start, and it all starts with a phone call. I’ll work with you to review your financial situation and make a plan that will discharge as much debt as possible while holding on to your hard-earned assets.