Applying for bankruptcy is a difficult decision that may impact your ability to access loans in the future as well as affect how your current debts are treated. This article will focus on how chapter 7 bankruptcy may impact on your mortgage, as well as exemptions you might be able to invoke to avoid foreclosure on your home.
Chapter 7 bankruptcy
This involves a total wipeout of most or all of your unsecured debts. However, you might be forced to liquidate your nonexempt property so as to raise money to pay some of your outstanding debts. The bankruptcy also protects your exempt property, such as your car and home, from being targeted by creditors for repossession.
When you take out a mortgage, your lending institution gives you a loan so you can purchase a house. In order to ensure that you will pay them back, the lenders place a 'lien' on the property, which is essentially collateral that ensures that they can reclaim the property should you fail to make the agreed-upon repayments.
The lien on your home makes the mortgage a secured loan that cannot be wiped out simply because you applied for bankruptcy, and the lender can enforce the lien if you fall too far behind on your repayments by foreclosing on your home. To prevent this from happening, it is advisable that you keep paying your mortgage on time despite filing for chapter 7 bankruptcy so as to avoid losing your home.
The homestead exemption
Chapter 7 or total bankruptcy does not necessarily put you at risk of foreclosure. With the help of a bankruptcy attorney, you may be able to hold on to your residence by invoking the homestead exemption to bankruptcy.
This rule basically allows you to exempt the equity you have on your home so you can hold on to your property. If you have a lot of equity on your home, which basically means that the house is worth more than you owe on it, then the trustee assigned to your bankruptcy case could consider this equity an nonexempt asset, and may decide to sell the home so as get money to pay off some of your creditors. However, if the homestead exemption amount in your state exceeds the equity on your home, then your trustee will not be able to touch your home. A bankruptcy attorney at Wiesner & Frackowiak, LC should be able to help you determine if this exemption can come to the rescue for your unique financial situation.