Concerns about the family home are common in people considering bankruptcy. When you find yourself in over your head financially, you may end up making a few late payments or finding yourself unable to pay your mortgage some months. All it takes is a missed payment that you can’t catch up on in a month to put you at risk of losing all of the equity you’ve built up in your home.
Thankfully, if you’re facing potential foreclosure, filing for bankruptcy protections can put a temporary hold on those proceedings. You need to look carefully at your income and financial situation to determine if filing for bankruptcy protections will leave you able to continue paying your mortgage.
Bankruptcy can discharge or restructure your debt
If you pass the Louisiana means test, you may qualify for Chapter 7 bankruptcy. If your adjusted income is less than the state median (average) income, you will likely qualify for Chapter 7 discharge. When you file, you receive an automatic stay from collection efforts, including foreclosure proceedings that haven’t ended yet.
In this scenario, all of your unsecured debts, like medical debts and credit card debts, will be eligible for discharge. That means you don’t have to pay them anymore. If that frees up enough income to make paying your mortgage more feasible, this could help you save your home.
For those with higher incomes but enough debt to make paying a mortgage difficult, Chapter 13 bankruptcy may be a great option. The courts will work with you and your creditors to create a repayment schedule that works for you and allows you to repay your past due amount on your mortgage.
Any amounts left on unsecured debts after you finish the repayment plan wind up discharged. By adjusting how much you pay to each creditor or even restructuring your mortgage, a Chapter 13 bankruptcy can help you keep your home.
Bankruptcy can’t help you after a foreclosure
If your bank has already taken all the necessary stops to foreclose on your property, filing a bankruptcy right before or after your eviction from the property will not help you keep your home. Similarly, if you don’t have enough income to make the mortgage payments reasonable, even the temporary relief of the automatic stay may not do enough to help you keep your house.
If you’re in a situation where it seems likely that you won’t be able to keep your home, you may need to consider your other options. If you’re early in foreclosure, your bank may still work with you to modify your mortgage. If foreclosure hasn’t started but is likely in the future, you can consider selling your home, provided that you aren’t underwater on your mortgage. Regardless of your exact situation, you shouldn’t give up on your home and your equity in it until you’ve explored all of your options.