Can I Keep My House if I File for Bankruptcy in Pennsylvania?
Your house is usually one of the most important places for you. You may have fought long and hard to get it, and you may not want to give up the everlasting memories you forged there. However, all of these great things may be in jeopardy when your creditors try to take it away from you. Unfortunately, you could lose your home to your creditors if you build up excess debt. However, there are ways to protect your home from your creditors during bankruptcy proceedings. Young, Marr & Associates’ Pennsylvania bankruptcy lawyers understand that people worry about losing their homes if they file for bankruptcy.
Two considerations must be addressed when determining if you can keep your home if you file for bankruptcy. First, are your mortgage payments current. If they are, then your home should be safe. If you file Chapter 7, a trustee could take possession of your home and sell it to pay your creditors. However, there are ways to protect your home under both federal and state law. Second, if you are behind in your mortgage payments, you could pay back what you are behind in a Chapter 13 bankruptcy.
However, this is only the “short” answer. The Bankruptcy Code is complicated, so the actual answer will depend on your specific circumstances. Below, our Philadelphia bankruptcy lawyers look at your home and bankruptcy in more detail. If you have any questions about bankruptcy and your home, call (215) 701-6519.
What Happens to My House if I File for Bankruptcy in Pennsylvania?
Every year, thousands of Americans file for bankruptcy due to financial hardship. Many times, and due to no fault of their own, homeowners see themselves buried under excess debt, which makes it hard to meet their monthly obligations. People may have to choose between buying the week’s groceries and paying their mortgage. That is why many debtors turn to bankruptcy as a means to deal with their financial hardship. In some cases, bankruptcy might help you protect your house.
Generally, if you have credit card debt, it is considered “unsecured debt.” This means your credit card debt is not secured by collateral, such as a house. Therefore, your credit card company cannot go against assets like your house right away when they try to collect on your debt.
However, creditors will often file a lawsuit to collect on a debt. When a creditor is successful, and they often are, if they can prove you owe the debt and filed their claim within the statute of limitations, they will obtain a judgment. In Pennsylvania, a collection judgment creates a judgment lien against your home. Now, that unsecured debt is secured by your house. Technically, the creditor could foreclose on the property to collect the debt. However, because the mortgage, foreclosure, and court costs would have to be paid first, a credit card company has no financial incentive to pursue a sheriff’s sale. Nonetheless, you now have a lien on your home that will have to be satisfied when the property is sold. The judgment lien will also continue to accrue interest.
Things can be very different when you have secured debt. Unlike unsecured debt, your mortgage is secured by collateral. In other words, the bank is specifically authorized to go after your house if you don’t pay your mortgage. Banks will often enforce that right to go against your house regardless of your financial situation. One of the ways your mortgagor will do this is through mortgage foreclosure in Pennsylvania.
Foreclosure is a legal process by which your creditor can take title to your house, sell it, and satisfy your debt with the proceeds. If your house is foreclosed and sold, you may be forced to move, which can add additional stress to an already difficult situation. You may be able to protect assets such as your home and your car through bankruptcy.
How Can Bankruptcy Help Protect My Home in PA?
Fortunately, you can often protect your home by filing for bankruptcy. There is a common idea that bankruptcy is some sort of “trap” or that bankruptcy will take everything from you. However, nothing could be farther from the truth.
The very goal of the Bankruptcy Code is to assist debtors in restructuring and managing excess debt in order to avoid financial catastrophe and help creditors get paid. Over the years, bankruptcy has made economic recovery possible for millions of Americans.
Furthermore, the bankruptcy process has allowed many people to protect their homes against foreclosure actions from their creditors. You may wonder how you can protect your property from foreclosure by filing for bankruptcy in Pennsylvania. Fortunately, bankruptcy laws contain a series of protections to help debtors pay back what they owe.
As soon as you file for bankruptcy, you obtain the protections provided by an “automatic stay.” An automatic stay is a legal mechanism that prevents your creditors from engaging in debt collection actions or foreclosure while your bankruptcy case is underway. The effect of this protection is immediate, and your creditors will not be allowed to take your home away from you starting the moment the stay is activated.
What Type of Bankruptcy is Right for Me in Pennsylvania?
As a debtor, it is easy to feel lost and hopeless, especially when going through bankruptcy. Bankruptcy can help you get rid of debt or restructure your finances through a plan depending on the chapter you file under. If you want to protect your house, that might affect which chapter you choose.
Chapter 7 Bankruptcy in Pennsylvania
Chapter 7, or “liquidation bankruptcy,” is a process where a debtor can discharge most or all of their unsecured debt. Recall, unsecured debt includes things like credit card debt that has no collateral, but it does not include secured debt like a mortgage. All potential candidates must go through a qualifying process before they can file for Chapter 7.
For instance, you will need to go through what is known as a. “means test.” A means test will compare your finances with your state’s median income to see whether you have enough disposable income to satisfy your debt. If your income falls below your state’s median income, you may be eligible for Chapter 7. However, if you are above your state’s median income, you may not use Chapter 7, but you might qualify under another chapter instead.
Chapter 7 is designed to eliminate debt. However, if you are behind on your mortgage and facing a sheriff’s sale, there are no mechanisms in Chapter 7 to cure mortgage arrears. While the automatic stay will stop any legal proceedings, including a sheriff’s sale, your mortgage lender will likely file a “motion for relief from stay.” This motion is a request to the court to remove the protection of the stay in relation to your home, allowing the mortgage company to move forward with the foreclosure. If you are behind in your mortgage payments and filed Chapter 7, the request will likely be granted.
On the other hand, what if you are current on your mortgage and are just trying to discharge unsecured debt? The answer depends on the equity you have in your home. Equity is the amount of money you would receive after selling the property and paying the mortgage balance and any closing costs. Under the federal exemptions, you can protect $25,150 in equity. If the equity in your home is greater than this amount, the trustee could sell the property, pay off all the costs, give you the $25,150, and use the remaining proceeds to pay your creditors. If you have significant equity in your property, you would have to file Chapter 13 or find another option other than bankruptcy.
Chapter 13 Bankruptcy in Pennsylvania
You can also file under Chapter 13 bankruptcy to be put on a wage earner’s plan. Through this process, debtors have the opportunity to devise a 3-to-5-year repayment plan with their creditors. Debtors must make sure to comply with all terms included in the repayment plan in order to have their debt discharged.
If you are behind on your mortgage and wish to keep your home, Chapter 13 is the type of bankruptcy you want to file. Here is how it would work.
You are $50,000 behind on your mortgage and your mortgage lender filed a foreclosure lawsuit in court. Before your lender obtains a judgment, you retain our Philadelphia bankruptcy lawyers to file a Chapter 13 case. When preparing the case for filing, a bankruptcy plan is drafted. This plan proposes paying $50,000 over five years. In addition to the mortgage arrears, the bankruptcy plan will also pay the trustee’s fee and the remaining balance of our fees. On September 1st, your case is filed.
Once your bankruptcy is filed, you are responsible for two payments: your regular mortgage payment and your Chapter 13 bankruptcy plan payment. In this case, both would be due on the first of October. Therefore, within 30 days, you must send a payment to your mortgage company and the Chapter 13 trustee. If you fail to pay your mortgage company, a motion for relief from stay will be filed. If you fail to make the trustee payment, a motion to dismiss your case will be filed. To keep your house, you must continue to make both payments.
In about one month, your mortgage company will file a “proof of claim.” This document lists the amount you are behind, breaking the cost down in detail. Our Philadelphia bankruptcy lawyers will carefully review the claim to determine if an objection must be filed. For example, if the mortgage company miscalculated the escrow amount or the attorney fees are unreasonable, an objection could be filed. If the numbers are accurate, the bankruptcy plan will be amended to reflect the correct figure. This could raise or lower your monthly payment based on the difference between the actual figure and the estimated one on the original bankruptcy plan.
If you are filing Chapter 13 because you had too much equity in your home, you will have to pay that amount to your unsecured creditors. To illustrate this, imagine you have $60,000 in credit card debt. When calculating the equity in your home, it was determined that there was $15,000 of non-exempt equity after subtracting the mortgage, closing costs, and your available exemptions. Therefore, you would have to pay $15,000 to your creditors over the next five years. While this might not seem as good as Chapter 7, it is probably lower than any possible settlement amount.
Judgment Liens and Philadelphia Bankruptcy
Previously we discussed judgment liens. When a creditor files a successful collection lawsuit in Pennsylvania, they obtain a judgment lien on your home. This lien will stay attached to your property until it is satisfied or the property is sold. Fortunately, you might be able to “avoid” a judgment lien through bankruptcy. To do so, the lien must impair your exemption.
To illustrate this, imagine you filed Chapter 7 to discharge your credit card debt and medical bills. However, before you filed for bankruptcy, one of your creditors obtained a judgment lien on your home. Because the equity in your home was low enough to file Chapter 7, the lien would impair your exemption. By filing a “motion to avoid lien,” the judgment lien would be converted to an unsecured debt and discharged with the rest of your obligations.
Bankruptcy Law Attorneys Offering Free Case Consultations in Pennsylvania
If you or someone you know is going through a tough time financially, we may be able to assist. Young Marr & Associates understands the difficulties associated with excess debt and how important it is to understand your rights when you’re in debt. For this reason, we dedicate our efforts to protecting your rights and helping you go through the bankruptcy process. Call our Bucks County bankruptcy attorneys today for a free, confidential consultation. Our phone number is (215) 701-6519.