Find Out Your Options When You Work with an Expert Bankruptcy Attorney
If you lack the right information about bankruptcy, the concept might have a negative connotation. You may have the misconception that it means “losing everything” or “permanently ruining your credit score.”
But what if you knew that bankruptcy is a constitutional right and that the Founding Fathers included protections for people in debt? What if you knew that the negative associations surrounding bankruptcy are supposed to benefit deceptive businesses who would rather you take out a loan with them to go further into debt than achieve true debt relief to get out of debt?
The stigma surrounding bankruptcy is based on misinformation, as well as the unhealthy practice of taking on more debt to get out of debt. This is a favorite business model of scam debt consolidation companies. These companies don’t want to see you exercise your constitutional rights to find yourself in a better position financially. They want you to help them continue a business that thrives on unfounded fears about bankruptcy.
If you’re currently wondering how to get out of debt, you may have found yourself thinking whether you may lose your house or face stigma the rest of your life. Know that these questions are common when people visit a bankruptcy attorney for the first time.
However, they soon find out what happens when you file for bankruptcy, and it’s good news. You can get your debts discharged in bankruptcy, you won’t lose your home, so long as you have a competent bankruptcy attorney, and you can rebuild your credit score within two years of filing.
What Happens to Your Home When You File for Bankruptcy?
Every state has different laws related to bankruptcy and your home equity. In Colorado, for example, you can benefit from exemptions to protect your home equity and other assets. Colorado’s homestead exemption protects a significant portion of your home equity from being used in a bankruptcy settlement. In Colorado, the protection for your home equity depends on how long you have owned the home and whether you or a dependent in the home are over 59 years old or disabled. While Colorado’s homestead exemption is more generous, federal bankruptcy law limits the homestead exemption (as well as any other exemption) to $190,000 of home equity until you have been in the home for more than 1,215 days (approximately three years, four months). Once you’ve owned the home for longer than 1,215 days, Colorado’s homestead exemption kicks in. Colorado’s homestead exemption allows you to protect up to $250,000 of home equity unless you or a dependent in the home are over 59 years old or disabled, in which case you can protect up to $350,000 of home equity.
Let’s look at an example. Suppose your home is worth $250,000 and you owe $150,000 on your mortgage. In this example, you have $100,000 in home equity. Because the equity in your home is below even the limiting federal exemption, creditors cannot seek that equity, nor will a bankruptcy trustee attempt to repay creditors through the sale of your home. In this case, your home is totally safe in bankruptcy and you will keep it so long as you pay your mortgage. You will not have to use your home equity toward paying off your debts, and you can get them discharged with help from an excellent bankruptcy attorney.
Your mortgage is actually a two-part transaction including a note (promise to pay) and a deed of trust (lien on your home). While the mortgage note is technically dischargeable in bankruptcy, the associated lien on your home typically survives bankruptcy. This means that you have to pay your mortgage to keep you home. Of course, this is true whether you file bankruptcy or not.
For many homeowners, discharging your unsecured debt makes it easier to make regular payments on your mortgage. And if you’ve been behind on your mortgage payments in the past, Chapter 13 bankruptcy can enable you to catch up on missed mortgage payments. When you meet with an attorney to file for bankruptcy, it is important to provide as much information as you can, including your record of mortgage payments, information about your lender, as well as a clear financial plan to pay your mortgage on time in the future. This information will help your lawyer give you the best advice possible to achieve debt relief while keeping your home.
A bankruptcy attorney with experience and strategic expertise understands the power of bankruptcy. They’ve worked with countless clients that find their way out of bankruptcy with no risk to their home. In fact, those who haven’t yet taken out a mortgage because of their financial situation can end up in a prime position to qualify for a mortgage, approximately two to three years after filing for bankruptcy. Despite what those in the debt consolidation industry would have you believe, this relatively short timeline to a mortgage shows how quickly your credit can recover after bankruptcy. For many people in debt, obtaining a mortgage two to three years after bankruptcy is the fastest path to owning a home.
The Differences Between Chapter 7 and Chapter 13 Bankruptcy for Homeowners
In Chapter 7 bankruptcy, your unsecured debts may be discharged, and your homestead exemption protects your home. However, if you’re behind on your mortgage in Chapter 13 bankruptcy, you can keep your home while paying your past due payments on a three-to-five- year payment plan before your debts are discharged.
If you have more home equity than is exempt, you should not file Chapter 7 bankruptcy because the Trustee will be able to sell your home in that instance. An excellent attorney will steer homeowners with non-exempt home equity into either Chapter 13 or debt settlement. In Chapter 13, you pay off the non-exempt amount of your home equity in a three-to-five-year payment plan with no risk of losing your home, so long as you pay your mortgage. If you are unable to make those payments, your case will be dismissed, but you will not lose your home in Chapter 13 bankruptcy.
However, keep in mind that the amount you have to pay into a three-to-five-year Chapter 13 bankruptcy plan depends on a number of factors. It starts with attorney fees, trustee fees, mortgage arrears, certain tax debt (i.e., taxes from returns due in the past three years), and the unprotected equity of your assets, all of which have to be paid through the bankruptcy plan. The amount you have to pay can increase above this depending on your income. The Colorado Means Test is meant to determine whether you have disposable income after paying for your necessities. If your disposable income is higher than the baseline of arrears, unprotected assets and certain taxes, you’ll have to pay more in a three-to-five-year Chapter 13 plan. Many higher income debtors would be required to repay all of their in Chapter 13 bankruptcy, which represents the upper limit of how much you’ll have to pay into a Chapter 13 plan.
When your disposable income will require you to repay half or more of your unsecured debt, you should consider debt settlement outside of bankruptcy. You can typically settle unsecured debt for approximately 50% of the balance owed. Trusted attorneys can help you calculate your disposable income during a free consultation and advise you on the pros and cons of settling debt versus bankruptcy.
A bankruptcy attorney can walk you through what happens when you file for bankruptcy in either Chapter 7 or 13. If you choose your attorney wisely, filing for bankruptcy may be the first time you feel hope that you can clean up past circumstances and move toward a better future.
Find a Bankruptcy Attorney that Offers Hope and Delivers Results
A bankruptcy attorney is your partner to ensure you don’t lose your home in bankruptcy. “Losing everything” is simply a stereotype about bankruptcy that is meant to make people feel ashamed for having financial troubles or to drive them to solutions that benefit the lender, not the debtor.
While many people will never know how it feels to go into debt, your bankruptcy attorney understands your situation. They also know how beneficial bankruptcy can be. In fact, they know the secret that it’s a right that’s meant to help you back on your feet, not ruin you.
Ruin is when you keep doing the same thing over and over again, hoping that this time it will be different. Bankruptcy is the braver choice, where you actually reach out for help. The most responsible thing you can do for yourself and your family is to pursue legal means for a better financial future. In many cases, that means filing bankruptcy to get out of debt, so you can provide the future your family deserves.
Learn more about the exceptional assistance that a leading bankruptcy attorney can provide.