Whether or not you lose your house in a bankruptcy can depend on whether you're behind on your mortgage and what chapter you file. If you're up to date with your mortgage payments, you can continue to pay your mortgage and keep your home regardless of the chapter you file. In a chapter seven, if you're up to date with your mortgage, you'll be fine. You can keep your house. If you're not up to date with your mortgage, a chapter seven won't do anything to help protect your home. A Chapter 13 does give you more options if you're behind on your mortgage and it facilitates options such as loan modification or catching up missed mortgage payments. So if you're behind on your mortgage payments, a Chapter 13 is probably best for you.
Your home might be the largest single investment you will ever make. The thought of losing your home can be scary and is often the reason people look into bankruptcy. Understanding how bankruptcy will affect your home depends on many factors, and each case is unique. Here are three major questions to begin the analysis of what is best for you:
Are you behind in your mortgage?
The simple fact about homes and bankruptcy is that the bank is just another creditor. If you are not behind in your mortgage payments and you intend to continue making those payments to keep your home, that is your right. Florida homestead laws and the bankruptcy code support this.
If you are behind in your payments, the question will be if you can catch up on your payments. Sometimes bankruptcy frees up money that can be used to get current on your mortgage. In general, if you are behind in your payments, the next question is:
Do you need a Chapter 7 or Chapter 13?
The type of bankruptcy you file makes a big difference in how your home is evaluated. Chapter 13 is a court-ordered restructuring of debt. Chapter 7 simply discharges or erases debt against you. As you can imagine, the rules in each chapter are different. In a Chapter 13, if you can afford to keep your home, the court will do its best to structure the debt to make that happen, usually with some sort of loan modification.
In a Chapter 7 your personal liability for a mortgage loan will be discharged. However, a mortgage has two obligations: (1) the note you signed with the lender where you agreed to pay the loan, and (2) the mortgage is the lender’s right to use your home as collateral. When you get too far behind in your mortgage payments, a lender can file a foreclosure action with the courts. A foreclosure is the bank’s legal process to grab the collateral.
In these economic times, it is very possible that your home might not cover the whole amount of the outstanding loan. This is referred to as being “under water.” The bank then has the right to go after you personally for the leftover amount, or the deficiency. That is the note half of your mortgage discussed above. Chapter 7 rescues you from that part of the obligation.
What is my tax lien situation?
If you are also behind on property taxes, this adds a wrinkle to your situation. Government, for the most, is unaffected by your choice to file bankruptcy. You could be current on your mortgage and still lose your home due to a tax lien. This added complexity will require future research to decide what is best for you.
As you can see, whether or not you lose your house in a bankruptcy can depend on whether you're behind on your mortgage and what chapter you file. The basic rule is that Chapter 13 is the choice if you are behind in your mortgage, and Chapter 7 is the choice if your current. But with so many other considerations based on your circumstances, it is hard to really know what the best path is for you until you sit down for an expert analysis.