What Is Bankruptcy?
Bankruptcy is a method to provide you with a new beginning by wiping out most of your debts. By filing Bankruptcy, you are also able to prevent creditors from harassing you and taking additional action to collect on any debts.
What Are the Different Types of Bankruptcy?
The two most common types of Bankruptcy under the Federal Bankruptcy code are Chapter 7 and Chapter 13.
Chapter 7- Liquidation:
Chapter 7 Bankruptcy is a federal court procedure in which you are able to eliminate most types of unsecured debt. Chapter 7 bankruptcy is often called the liquidation bankruptcy because your non-exempt property may be sold to pay your creditors. It is important to note, however, that the right to a discharge is not guaranteed, and some types of debts are not dischargeable.
Chapter 13- Reorganization:
Chapter 13 Bankruptcy is often referred to as "reorganization", and it involves a repayment plan that is submitted for court approval to allow a debtor to restructure his or her debts. Under a Chapter 13, you would be allowed to keep your property and pay off debts over time. Under a Chapter 13, a repayment plan must be approved and the size of the plan payments are determined by the amount the debtor can afford after paying necessary living expenses. The debtor receives a discharge if all the plan payments are made.
Can I keep my house if I file for bankruptcy?
Yes. If you are behind on your mortgage payments and you file a Chapter 13, which is a payment plan bankruptcy, you can keep your home as long as you stay current in your plan payments, and in your post-petition mortgage payments. Your pre-petition delinquent payments can be paid over time through your Chapter 13 plan.
If you file a Chapter 7 you may be at a greater risk to lose your house. If there is no equity in your home and you are behind in your payments, your secured lenders(s) will most likely file motions to continue with the foreclosure unless you decide to enter into a reaffirmation agreement with your lender(s) to keep that from happening.
However, if there is equity in your home, and you have other creditors that need to be paid, the Chapter 7 Trustee may sell your home to pay off your creditors. As always, you need to discuss your unique situation with your attorney.
Should I try a loan modification or debt consolidation before I file for bankruptcy?
That is a personal decision and depends on the facts of your case. There are a lot of fraudulent companies these days that offer “loan modifications” and “debt consolidation” which are taking peoples’ money and then doing absolutely nothing! Your best bet is to consult with an attorney prior to trying to modify your home loan.
How much does it cost to file for bankruptcy?
At the Law Offices of Catarina M. Benitez, every situation is evaluated independently, so the cost for filing may vary. The Federal filing fees are as follows:
Chapter 7 Petition Package = $335.00
Chapter 13 Petition Package = $310.00
In addition, you are now required to complete credit counseling within 180 days before filing Bankruptcy, and those costs can vary depending on the company. Your attorney can assist you with a reputable provider.
The new bankruptcy law also requires attorneys to perform “due diligence” before they file your bankruptcy petition. This means that at the very least, your attorney needs to run a credit report to validate the information that you have provided to her. Generally, however, due diligence also includes pulling a tax transcript, a NADA Guide or Kelley Bluebook auto valuation, a lien search & ownership report, and an AVM home appraisal.