Why Your Bankruptcy Attorney Needs To Know Your Home's Value

One of the first questions your bankruptcy attorney will ask you is, "what is the value of your home?" This often throws people off, because home values are not the first thing they are considering in the face of mounting bills and pressure from creditors. It seems like the first questions should be about your amount and types of debt. These are certainly important questions that will need to be discussed, but knowing the value of your home often determines more when considering whether or not to file bankruptcy.

The value of your home is so important because it is likely your most valuable piece of property, and it will need to be protected from your creditors. "Exemptions" under bankruptcy law protect your property from your creditors. However, these exemptions are not unlimited. If, for instance, your own a million dollar home, you cannot file for Chapter 7 bankruptcy, as you would have too much equity in your home. Now, I am sure you are saying, "...if I had a million dollar home, I would not be filing for bankruptcy." Which is true, but this is just an extreme example. An individual can in fact only exempt about $27,000 in equity in their home, a couple only double that amount. So, there will be many situations where the exemptions will be an issue, as this is often about how much equity someone has in a home.

"Equity" is the value of your home, minus what you owe on it. So, first thing that will be important to know is the value of your home (determining what you owe is simple... get a mortgage statement). The value the bankruptcy court will want to know is what the home would actually sell for, not its tax assessment value (they never use this value, as it is rarely accurate). The best value would be a recent purchase price. If you purchased your home last year for $100,000, it is probably still worth $100,000. If you purchased it five years ago, that purchase price may no longer be relevant, depending of the neighborhood. In general, recent purchase price is not useful if your home was purchased awhile back, but it may be a guide as to what it is worth.

The other fool-proof way to value your home is to get an appraisal from a third-party appraiser. The only downside to this method is that an appraisal usually costs several hundred dollars. This will not be necessary in most cases. If you clearly owe more than what your home is worth, you will not need a full appraisal. If your home can be reasonably valued using online comparable values, or recent sales in your neighborhood, you will not likely need to go through the expense.

However, there will be times when getting an appraisal is advisable. In situations where your home value is unclear, or where the exemptions may fully protect your home, or not, depending on the value, it should be strongly considered. An appraisal may save you thousands of dollars in bankruptcy, so a few hundred dollars would be well spent to get one. This will be something to discuss with your bankruptcy attorney.

If the value of your home is too great for the exemptions, all is not lost. You will still be allowed to file a Chapter 13 bankruptcy which lets you keep your home and repay your creditors over a five year period, with court protection. This is the subject of other posts, but even in these cases, providing the court with an accurate value of your home will be necessary.

So, if you are considering speaking to a bankruptcy attorney about your situation, and you own a home, you should first take a little time to consider what your home is worth. Contact us if you would like to schedule a free consultation to discuss your debt and how it relates to your home. We can discuss your situation in more detail and see if bankruptcy is an option for you.

Bankruptcy Options When You Are Behind On Your Mortgage

Many individuals end up in my office when they fall behind on their mortgage. It is a common problem. The most frequent cause is a temporary lose or reduction in employment. Several months of unemployment can quickly lead to a family facing a foreclosure, which are sometimes filed within 3 months of the first missed payment. Fortunately, the Bankruptcy Code can help, whether you want to save the home you have fallen behind on, or if you simply want to walk away from it.

What if you are behind on your mortgage, and you don't want to stay in the home? Chapter 7 bankruptcy can help. When a debtor falls several or more months behind on a mortgage, a foreclosure proceeding will often commence. A foreclosure allows the lender (usually a bank or mortgage company) after a series of court filings, to seize the home, sell it at auction, and then go after you personally if the sale price does not cover all of the mortgage and expenses. Certain lenders and law firms specialize in doing just this.

Homes often sell for very low prices in these sales, and if the mortgage was large, this could lead to a huge "deficiency judgment" against you. The lender will be able to put liens on your property (or future property) or even freeze your bank account. And these deficiency judgments do not go away. However, Chapter 7 bankruptcy can wipe out these deficiency judgments, no matter how large they become. When there is a large deficiency, bankruptcy may be the only option allowing you to go on with your financial life. The process is very straightforward, and you can even continue to live in the home until it is sold at auction. This is often months down the line. As long as you are willing to ultimately surrender the home, Chapter 7 bankruptcy is the perfect option.

On the other hand, what if you are behind on your mortgage and you want to save your home? You will need to file a Chapter 13 bankruptcy. Chapter 13 bankruptcy is more complicated, but it has many benefits. You can catch up on mortgage arrears by paying them back over 3 to 5 years, without interest or further penalties. Spreading out the amount owed over a period of 60 months can make repaying even large arrears feasible. For instance, if you are one year behind on a $1,000/month mortgage, you can catch up the arrears for $200 over 5 years. While this may not be possible if you have not started working, it is often very workable when full employment returns.

Another important feature of using Chapter 13 bankruptcy when you are behind on your mortgage is that it can stop a sheriff sale up until the very moment the gavel goes down, and it does not require negotiation with the lender. Loan modifications are often endless (and useless) endeavors. However, under Chapter 13 bankruptcy, there is no such negotiations. As long as the lender is paid under the terms of the mortgage, and all arrears are accounted for, they must accept the filing. Chapter 13 bankruptcy can help in all but the most hopeless situations.

Contact us if you have fallen behind on your mortgage and you wish to discuss your options. Whether you want to save your home, or surrender it, bankruptcy has an option for you.

Do I Qualify For Chapter 7 Bankruptcy: Part 2

In my most recent post, I discussed the importance of income in determining if you qualify for Chapter 7 bankruptcy. In this post, I will discuss the importance of your mortgage in determining if you qualify. I always inquire into a potential client's mortgage situation after asking about income.

If you rent and do not own a home, you can skip this post. However, if you are considering filing a Chapter 7 bankruptcy and you do have a mortgage, read on. The particulars of your mortgage will be the second thing I discuss with any potential new client. This is because the current status of your mortgage payment, and the equity you have in your home, help determine if you qualify for a Chapter 7 bankruptcy.

"Equity" quite simply is the value of your home, minus all the liens on the home (mortgages, home equity loans, tax liens, etc.). So, if your home is worth $150,000, but you have a $100,000 mortgage, and a $30,000 home equity loan, your equity is only $20,000. If you owe more on your home than it is worth, you have "negative equity". This is sometimes know as being "underwater" on a loan.

Why is equity so important to Chapter 7 bankruptcy? Because the federal exemptions available to protect the equity in your home from your creditors is limited. It is roughly $26,000 per filer (about $52,000 if the home is jointly owned with a co-filing spouse). Exemptions are very useful, but they are limited. If the equity in your home exceeds the exemptions, you have only two options. First, you can surrender the home, with the equity being liquidated to pay your creditors (not a great option!) Or, you can file a Chapter 13 bankruptcy and repay the unexempt equity, dollar-for-dollar, to your unsecured creditors (such as credit cards).

So, one of the first questions I ask a prospective client is, "How much is your home worth, and what do you owe on it?" Your first consultation will be more useful if you do a little research on the value of your home (checking online real estate websites such as Zillow) and find a most recent mortgage statement. If your equity is too great, we will need to look at a Chapter 13 bankruptcy, but if not you still may qualify for a Chapter 7 bankruptcy. Try to know the value and amounts owed on your home when meeting for your first consultation with your attorney,

A second important issue regarding mortgages and filing Chapter 7 bankruptcy is whether or not you are current on the mortgage. If you are behind on the mortgage, and you want to keep the home, you must file a Chapter 13 bankruptcy and catch up the arrears over a three to five year repayment plan. The Court will not let you file Chapter 7 and keep a home with arrears or while in foreclosure. However, you can file a Chapter 7 if you wish to surrender a home with arrears, and those arrears will be wiped out.

When I ask a prospective client about their mortgage payment, the current status of the payments is also important. If you are only a month or two behind, you can possibly catch up the payments and file Chapter 7. However, if you are three or more months behind, you will need to consider filing Chapter 13, or surrendering the home. Make sure you arrive at your initial consultation with this information.

(As a quick side note- the same holds true for car payments. If you are behind on your car at the time of filing, and want to keep the car, you will need to file a Chapter 13 bankruptcy, or surrender the car.)

So, after looking at your income, we must look at your mortgage situation to determine whether the equity in your home is fully exempt, and whether you are current on your payment. The third and final part of this blog post will discuss some miscellaneous issues that determine Chapter 7 bankruptcy eligibility. These issues will be discussed in my final post on the subject.

Contact us if you have any questions regarding your eligibility to file a Chapter 7 bankruptcy. I am an experienced Pittsburgh bankruptcy attorney who will be happy to discuss your situation at a free consultation.