CHAPTER #19 What Happens to My House in Bankruptcy?

Bankruptcy can be used to catch up house payments, or to get rid of a house you don't want, or to get rid of other bills so you have enough money to pay your house payment.

All debts have to be listed on any bankruptcy petition, whether or not you intend to pay them or not. If you are up to date in your house payments, and your attorney has determined that creditors will not be able to attach your interest in your house, you may have decided to get a fresh start by discharging your other bills under Chapter 7, while you keep your house payments up to date. In fact, the whole reason you may be filing under Chapter 7 is so that you can get rid of your other bills, and keep your house payments current.

In Illinois and Indiana, as long as the market value of your house, less cost of selling it, is less than your mortgage totals plus $ 15,000.00 for each person in title residing there, you should have no problem keeping your house in a Chapter 7. No one ever loses their house by mistake, in that situation, by filing a bankruptcy. Bankruptcies often save houses, by getting rid of other bills that prevent you from keeping your house payment up to date. Equity in your house over the amount of the mortgage is often exempt from creditors under local homestead exemption laws.

Some people don't want to keep their house. In that case, they probably already are hopelessly behind, and it would be too difficult to catch up. Chapter 7 will not help you catch up. We only file Chapter 7 cases when you are pretty much current on your house, or if you want to give it up, and not have the bank sue for any personal liability. If you are behind, and want to keep your house, we will advise you whether or not you can qualify for a Chapter 13 Debt Repayment Plan.

Chapter 13 of the Bankruptcy Code provides rules for catching up past due mortgage payments. If your reason for thinking about contacting a bankruptcy lawyer is to save a house that has past due mortgage payments, you must do it as soon as possible, so that a foreclosure is not filed, and the house is not sold in a sheriff sale. There are very specific and complex rules depending on at what stage of a foreclosure you are at. The sooner you act, the better. Waiting until you are 10 or 12 payments behind is almost always fatal. Remember, when you skip a mortgage payment, the mortgage balance usually goes up, because the interest that you would have paid that month isn't paid, and is added to your balance. In addition, the money you would have paid for your tax and insurance escrow isn't being paid, so your insurance may be cancelled and your real estate taxes may be delinquent.

If your house is worth a lot of money, or even if it is only worth more than your mortgage plus homestead exemption, you may not be able to file a Chapter 7 and still keep the house. You may have to do a Chapter 13 repayment plan to protect your equity in the house. It is necessary to bring in a recent appraisal if you want competent advice from your attorney. You do not need an expensive appraisal. You may already have one if you have recently refinanced the house, or if you recently purchased it. A letter appraisal from a local real estate agent will do. It should be realistic, and should not be for purposes of listing the house. It should be a "quick sale" evaluation based on recent sales in the area, and current market conditions. If I have an appraisal, I can quickly tell my client what I can and cannot do to save their house, and get rid of other bills.

Example: Mr. and Mrs. Robertson have fallen behind in their house payments, because Mr. Robertson was ill for 6 months. They were served with a foreclosure suit, and want to save their house. They have no other bills. Their neighbors, the Smiths, have a lot of bills, but they are current only on their house payment.

The Peter Francis Geraci Chapter 7 or 13 Solution: The Robertsons can file under Chapter 13 of the Bankruptcy Act to pay the 6 months of arrears, and foreclosure costs, over as long as 36 months. They have to start paying their regular mortgage payments again, but the mortgage company has to stop the foreclosure, and accept regular payments again. The Smiths can file under Chapter 7, and discharge all of their debt, and they can keep their house since it is worth $80,000, and their equity is less than $15,000 allowed as exempt from creditors under Illinois law. Other states have other laws relating to homestead.