Bankrupt? Keep Your Home Using These Tips
By Brian O'Connell
Just because you�ve fallen into bankruptcy doesn�t mean that you�ll lose your home.
Even if you are in bankruptcy, you�re hardly alone. A new report from Automated Access to Court Electronic Records (AACER) says that total U.S. bankruptcies may hit 1.5 million this year.
If you�re in that group, and you want to keep your home during all the turmoil, it�s doable. Just use these handy tips to ensure that your home isn�t lost to bankruptcy. The key is to keep making payments � come hell or high water.
Opt for Chapter 13 over Chapter 7. What type of bankruptcy you file for may determine whether you can keep your home or not. In general, there are two types of bankruptcies:
- * Chapter 7 - A bankruptcy in which most of your debts (if not all of them) are cancelled, usually within a six-month time frame.
- * Chapter 13 - A bankruptcy in which any income you earned is used to make payments on debts, usually within a five-year period.
Your chances of keeping your home under Chapter 7 are smaller than under Chapter 13. Some states may allow you to keep your home under Chapter 7, but if you have any significant equity in your home, your chances go downhill fast. Bankruptcy courts tend to try to earmark home liquidity for debt payments (by getting your mortgage company to sell your home and using the proceeds to pay down your debt). But courts can�t legally sell your home. Only the mortgage company, which holds the title to your home, can force that issue.
One more thing: Under Chapter 13, you�re operating on a state-approved �installment� plan, where you make one monthly payment to a bankruptcy trustee, who then pays your creditors. By and large, as long as you keep making your payments on time, you�ll keep your house.
Get a loan modification. Believe it or not, your odds of getting your home loan modified by your lender goes up after a bankruptcy. It would seem that creditors prefer to wait until your back is really against the wall before deciding to work with you to reduce your mortgage. But being in bankruptcy tends to get a lender�s attention.
Your best bet? If you opt for Chapter 13, which is probably your optimal move to keeping your home during a financial calamity, make sure you make your monthly payments on time. Even one late payment can trigger a �relapse� and cancel the terms of your Chapter 13 agreement.
But if you can manage those on-time payments, you don�t have to give up your home � even if you wind up in bankruptcy.
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