How to Keep Your Home through Chapter 7

Home chapter 7Whether you can keep your home when filing a Chapter 7 case mostly depends on the answers to two questions:

  1. Are you current or close to current on your mortgage and other debts on your home, and
  2. Is the equity in your home protected by your “homestead exemption”?

Let’s focus today on your mortgage.

If You Are Current on Your Mortgage

Do you want to stay in your home, are current on your mortgage payments? Will you be able to keep up those payments after writing off all or most of your other debts in a Chapter 7 case?

If your answer to both of these questions is “yes” then your home and your mortgage will very likely proceed through a Chapter 7 case smoothly without any change.

Careful about Other Mortgage Requirements

You also need to be in compliance with other conditions of your mortgage contract. The two key ones involve keeping current on homeowner’s insurance and property taxes.

With most mortgage contracts falling behind on insurance or property taxes are each considered a breach of the contract. So not being current on those count as legal grounds for foreclosure even if you’re current on the mortgage payments themselves.

This is sensible. If there’s no insurance in effect your home could be destroyed in a fire and your mortgage lender would have virtually no collateral protecting their debt. If your home is foreclosed by the property tax entity for unpaid taxes, the mortgage lender would be foreclosed out along with you, again leaving it with no collateral.

If Just a Little Behind on Your Mortgage

Even if you are a few months behind on your mortgage payments, you may still be able to save your home in a Chapter 7 case. It’s a question of timing.

A Chapter 13 “adjustment of debts” may be the better option if you are behind on your mortgage payments. It can also be better if you are behind on insurance or property taxes, have a second mortgage, or have other liens on your home, such as from income taxes or child/spousal support.

But a Chapter 13 case takes so much longer than a Chapter 7 one—usually 3 to 5 years instead of about 4 months. It has other potential disadvantages as well. So you generally want to file a Chapter 7 case if you can keep your home without a Chapter 13 case.

In a Chapter 7 case your mortgage lender will almost for sure make you catch up on any missed payments. Usually you will have to make your regular monthly payments PLUS enough extra each month to pay off the arrearage within a certain length of time. Usually you will be given no more than a year or so to catch up.

So, you and your bankruptcy lawyer need to look closely at your after-bankruptcy budget to determine whether you could afford to pay enough extra each month to catch up, and so so fast enough.

If You Can’t Afford to Catch Up Fast Enough

The reason that Chapter 13 can be a better way to save your home is that it gives you much more time to catch up on late mortgage payments. It can usually buy you as much as 5 years. Chapter 13 can also help with other debts secured by your home, such as second (or third) mortgages, property taxes, and income tax liens.

Our very next blog post will address how Chapter 13 buys you more time if you need it.

So if you live in the Dallas-Fort Worth Metroplex and have fallen behind or are about to fall behind on your home mortgage, please contact me. I’m Carrie Weir, an experienced a Texas bankruptcy lawyer. I particularly serve the areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please get in touch with me for a free and confidential consultation. You can either call me at 972-772-3083 or use the contact form here.

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