CAN I KEEP MY HOUSE WHEN I FILE BANKRUPTCY?
If you are current on your payments:
Yes, it is possible to keep your house and file for bankruptcy. If you qualify for a Chapter 7 bankruptcy (which wipes out the majority of most debts), then you can keep your home if you are current on the monthly payments and you do not have excess equity in your home. Currently the State of Ohio allows each owner of a home to keep $132,900 of equity in their house. The value of your home is typically determined by using the auditor value, but, if you are borderline on having over $132,900 of equity, then it may be recommended that you get an appraisal.
If you are not current on the payments:
If you are not current on your mortgage payments and you cannot get caught up or work out a loan modification agreement with your lender, then it may be recommended that you do a Chapter 13 bankruptcy. A Chapter 13 bankruptcy allows you to file for bankruptcy protection, which will stop any foreclosure or threats of foreclosure, and enter into a monthly repayment plan. This can be particularly useful because the bankruptcy filing stops the accumulation of fees assessed when you become behind on the payments. In order to make a Chapter 13 repayment plan work, you must have an income stream that shows you can afford the normal monthly mortgage payment plus a repayment of any mortgage arrears over 5 years. If you are unsure of whether you would be able to afford this payment, my office will work up an estimated Chapter 13 payment free of cost. If your home has reduced in value and there is no equity for your second mortgage to attach, then a Chapter 13 will allow us to avoid the second mortgage completely.
CAN I KEEP MY CAR WHEN I FILE BANKRUPTCY?
Chapter 7 Bankruptcy:
In a Chapter 7 bankruptcy you can keep your vehicle if you are current on any loan payments and you do not have excess equity in the car. Currently the State of Ohio allows each owner of a vehicle to keep $3,675 of equity in their vehicle. We use the NADA value to assess how much your car is worth. If you are worried that your vehicle may have too much equity, I usually recommend that you take the car to CarMax and get a quote on what they believe the value to be.
Chapter 13 Bankruptcy:
A Chapter 13 bankruptcy may be recommended if your vehicle has substantial equity and is at risk for being taken in a Chapter 7. Because you will be paying a little bit back to your creditors in a Chapter 13, the equity in the vehicle is protected. Additionally, a Chapter 13 can be used to help you get caught up on car payments if you have fallen behind, thereby preventing a possible repossession. If your vehicle has been repossessed but has not yet been sold, then we can file a Chapter 13 to get the vehicle back to you and start the repayment plan. A vehicle loan being paid through the Chapter 13 will be paid at a lower interest rate, typically anywhere from 4-6%. In some cases we can even pay the lender only the amount that the vehicle is worth, instead of the full loan amount.
CAN I INCLUDE STUDENT LOANS IN BANKRUPTCY?
The answer is yes, and no. Currently student loans are not dischargable through bankruptcy pursuant to 11 U.S.C. Section 523. In very rare circumstances, student loans can be discharged if the person is disabled and can show they will not be able to hold any sort of job for the remainder of their lives. Even in this circumstance, getting a student loan discharged is unlikely and can be a very long and expensive process. See below for other options.
Your student loans will be listed in your Chapter 7 bankruptcy as a debt you owe. However the student loans cannot be discharged. The filing of a Chapter 7 bankruptcy will stop collection activity from the student loan companies for only a short time. After the case is completed, you will need to work with the Student Loan company to obtain a forebearence, deferral or repayment plan.
A chapter 13 bankruptcy is the only tool we currently have to relieve the pressure of student loans on an individual. The student loans are put into a repayment plan over 5 years. You will likely pay cents on the dollar during that time period (although this is dependent upon income and assets), which substantially reduces the monthly payment. You cannot be garnished or pursued by the student loan companies during that time. The student loans will not be discharged when the 5 year repayment plan is over, so you will need to begin paying them again. Many clients use the Chapter 13 bankruptcy as a tool to maintain student loans while they find a higher pay job or move up in the current job over the 5 year repayment period.
See the Article from NBC Business below about possible ways to deal with student loan debt.
HOW WILL BANKRUPTCY AFFECT MY CREDIT?
Filing a bankruptcy will make your credit score drop. However, in many cases it is likely that you are already behind on credit cards or medical bills and your credit score has already taken a hit. The good thing about a bankruptcy is that your credit score will begin to rebound after your case is filed.
A Chapter 7 bankruptcy will report on your credit for 10 years. A Chapter 13 bankruptcy will report for 7 years. This does not mean that you are doomed to have bad credit that entire time. Most of my clients find that their credit score has improved dramatically after only 2-3 years from the file date.
I have posted a couple links below for articles on how to rebuild your credit after filing bankruptcy.