The thought of losing assets is one of the most common fears associated with filing bankruptcy. Bankruptcy myths are abundant on the internet. Losing everything you have worked so hard to purchase is one of those myths. Yes, some people may lose their home or car when they file bankruptcy; however, these people usually cannot afford to keep their home or car even if they did not have the other debts. The truth is that most people who file bankruptcy who want to keep their car and home can retain these assets.
There are several outcomes regarding your home and car when filing a bankruptcy case.
Your Home and Car in A Chapter 7 Bankruptcy
If you owe money on your home or car, you may keep these assets if you continue to make the payments to the lender. However, past due payments must be caught up immediately. Some creditors may work with debtors to allow a short time to catch up payments but it is not common, and debtors should never assume they won’t immediately be required to pay the past due payments to the lender. Furthermore, if a large amount of equity exists in the asset, the trustee may consider whether the asset is worth selling for the estate.
For debtors who cannot afford to continue paying the payments on their mortgage or car loan, they can surrender the property the creditor in full satisfaction of the lien. The lender cannot file a deficiency judgment against the debtor if the lender doesn’t receive full payment for the lien when the asset is sold.
A debtor who owns his or her home or car free and clear of liens must be careful when filing a Chapter 7 bankruptcy. If the value of the asset exceeds the allowed exemption, the trustee will likely sell the asset to pay the creditors. The debtor receives the exemption amount before creditors receive any money. In some states, the exemption amount is very low.
Your Home and Car in A Chapter 13 Bankruptcy
Filing a Chapter 13 bankruptcy case stops foreclosures and repossessions. Many people use Chapter 13 to save their homes and cars when they are behind in the payments.
For example, if you have been served with foreclosure papers, a Chapter 13 bankruptcy can allow you to keep your home by spreading out your past due mortgage payments over a 5-year plan. However, you must be able to resume regular payments to the lender outside of your bankruptcy plan. The same applies if you are about to lose your car except, in most cases, the car loan is paid in full through your Chapter 13 plan.
If you don’t have a lien on your home or car or if there is substantial equity in the asset, filing a Chapter 13 can prevent you losing the asset. In a Chapter 13 case, the trustee doesn’t sell assets. If the equity in the asset exceeds the allowed exemption, you can pay the different into your plan to go toward your unsecured debt. Filing Chapter 13 can be a great solution for protecting assets that may be in danger under a Chapter 7 case.
It is important to review all options prior to filing bankruptcy under any chapter. You may have several options, but only one option is the best course of action to give you the most benefit. Filing bankruptcy has benefits and disadvantages. You must be aware of all the pros and cons before you make a decision regarding the best way to handle your debt problem.
Consulting with a trained professional before filing bankruptcy is your best step to protect your assets, get rid of debt, and give yourself a brighter financial future.