What Will Happen to My Home and Car If I File Bankruptcy?
In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt and you continue to keep your payments current. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13. Bankruptcy does not make these security interests go away. If you don't make your payments on a secured debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
What is a secured debt?
A secured debt is a debt which is owed to a creditor who has taken an interest in property that you own. For instance, when you have a car loan, the creditor may put a lien on your car to "secure" the payment of the debt you owe. If you fail to pay, the creditor has the legal right to take the car, or the collateral. With personal property like a car or computer, this is called repossession.
When you buy a home and borrow money to pay for it, the bank will put a lien on the home. This is called a mortgage and enables the bank to legally take the home if you fail to pay the debt (mortgage). With real property such as a home or a camp, this is called foreclosure. There are certain limitations to the bank's rights and method of foreclosing.
What is an unsecured debt:
An unsecured debt is a debt you owe to a creditor which does not have any property backing it. Normally these include things like credit cards, medical bills, local stores, utilities. The creditor has no "security," otherwise known as collateral, for the payment of its debt, so there is no property for the creditor to repossess or foreclose on. This is one reason why unsecured creditors (credit card companies) are so aggressive in their collection efforts. They can only reach property if they have a judgment from a court.
Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions.
Bankruptcy will not normally wipe out:
- money owed for child support or alimony, fines, and some taxes;
- debts not listed on your bankruptcy petition;
- loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
- debts resulting from "willful and malicious" harm;
- student loans owed to a school or government body, except if the court decides that payment would be an undue hardship;
- mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Will Bankruptcy Affect My Credit?
There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.
The fact that you've filed a bankruptcy can appear on your credit record for seven to ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit. Requesting Your Credit Report
What Property Can I Keep?
You may keep all property which the law says is "exempt" from the reach of creditors. Exemptions are designed to let you keep property necessary for living. For example, if you chose the Vermont exemptions, you would be entitled to keep up to:
- $125,000 in equity in your home;
- $2,500 in household goods and furnishings;
- $2,500 in equity in your car;
- $5,000 in tools of the trade (things you need for your job);
- $7,400 in any property;
- Your right to receive certain benefits such as social security, unemployment compensation; veteran's benefits, public assistance, and pensions--regardless of the amount;
- and others.
The amounts of the exemptions are doubled when a married couple files together, with the exception of the homestead exemption.
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a$40,000 mortgage, you count your exemptions against the $10,000 which is your equity.
While your exemptions allow you to keep property even in a Chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a Chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.
What different types of bankruptcy cases should I consider?
Chapter 7 is called a “straight” bankruptcy, or a liquidation. By filing a petition with the court and listing all your debts, assets, income and expenses, you are asking the Court to eliminate your obligation to pay most of your debts. This is called a discharge. Chapter 7 is also referred to as a liquidation because in return for a discharge, your assets that are not exempt will be liquidated (sold) and used to pay some of your debts. Most individuals do not have any assets which would be considered non-exempt. If you are concerned about your ability to keep certain property, you should speak with a professional. If you want to keep property like a home or a car and are behind on the payments, a chapter 7 case probably will not be the right choice for you because Chapter 7 does not eliminate the right of these creditors to take your property to satisfy your debt. Chapter 13 may eliminate this problem.
The filing fee for a chapter 7 case is $335.00;This fee may be waived, depending on income and assets. Legal fees (which are in addition to the filing fee) depend on the type and amount of debts and assets.
A chapter 13 case is a type of “reorganization” in which you file a plan with the Court showing how you will pay off some of your past-due and current debts over three to five years. You will normally make monthly payments to the Chapter 13 Trustee who pays that money out among your creditors.
Depending on your income, Chapter 13 can do several things chapter 7 can not do.
* If you have non-exempt assets but still need relief from your debts, you will be able to keep those assets if you pay their non-exempt value through your plan.
* If your home is in foreclosure (or you are significantly behind in mortgage payments) you can propose a plan to catch up on those payments and stay in your home.
* If you are behind in rental payments and are in danger of eviction, you may propose a plan to catch up on the rent and remain in your home.
* You may, in some cases be able to pay the value of secured property (like a car) rather than the actual debt, which is in many cases more than the value. You may also stretch the payments out to 60 months and reduce the monthly payment and the interest rate. This has the effect of lowering your monthly expenses, giving you more breathing room.
You will be required to pay a certain amount of your unsecured debt through the plan and how much you pay will depend on your budget.
You will need to have enough income (even if it is SSI or ANFC) in chapter 13 to pay your expenses and make the Chapter 13 plan payment each month.
The filing fee for a chapter 13 case is $310.00. This fee can not be waived, but in special circumstances, you may ask the court if you can pay this in installments. Our fee (in addition to the filing fee) depends on the type and amount of debt and assets, and the complexity of your plan.