As foreclosure rates across the country continue to increase (and with New Jersey being having one of the highest foreclosure rates in 2022)[1], filing for bankruptcy can be a challenging and overwhelming process, especially when it comes to concerns about losing your home. As a bankruptcy attorney, I understand the importance of preserving one's most valuable asset. In this blog, I will provide valuable information and practical strategies on how to keep your home during bankruptcy proceedings, specifically highlighting the differences in treatment between Chapter 7 and Chapter 13 bankruptcy. Remember, every situation is unique, and consulting with a professional bankruptcy attorney is crucial to navigate the complexities of the process effectively.
WHAT IS THE FIRST STEP? UNDERSTANDING YOUR BANKRUPTCY OPTIONS IN NEW JERSEY:
The first step in protecting your home during bankruptcy is to understand your available options. Chapter 7 and Chapter 13 bankruptcy offer different approaches when it comes to dealing with your home. In Chapter 7 bankruptcy, your non-exempt assets are sold to repay creditors. However, this does not necessarily mean that you will lose your home. The outcome depends on factors such as the equity in your home and the available exemption amounts. Chapter 13 bankruptcy, often referred to as reorganization bankruptcy, provides an opportunity to create a manageable repayment plan over a specified period, typically three to five years. Unlike a Chapter 7, this chapter of bankruptcy is particularly advantageous for individuals who want to protect their homes from foreclosure because it offers more options for the homeowner. By consulting with a bankruptcy attorney, you can determine which option is best suited to your circumstances.
DO YOU UNDERSTAND THE VALUE OF YOUR NEW JERSEY HOME AND HOW IT AFFECTS YOUR BANKRUPTCY?
Whether you file a Chapter 7 or a Chapter 13, properly valuing your home is crucial during bankruptcy proceedings. An accurate valuation ensures that you have a clear picture of your home's equity and helps determine the protection it may be eligible for. Engaging the services of a professional appraiser can help provide an unbiased assessment of your property's value, which is vital for making informed decisions during bankruptcy.
Obtaining an appraisal of your home will allow your bankruptcy attorney to determine the equity in your home (Equity refers to the value of your home minus any outstanding mortgage or liens. This equity is further protected by your available homestead exemption[2]). If your home's equity is below the available homestead exemption, it is likely to be protected in Chapter 7 bankruptcy. This is why it is essential to consult with a bankruptcy attorney who is familiar with the homestead exemptions applicable in your jurisdiction.
DID YOU KNOW THAT CHAPTER 13 CAN HELP YOU SAVE YOUR HOUSE FROM FORECLOSURE?
Understanding Chapter 13 Bankruptcy and Home Protection:
Chapter 13 bankruptcy, often referred to as reorganization bankruptcy, provides an opportunity to create a manageable repayment plan over a specified period (typically three to five years). This chapter of bankruptcy is particularly advantageous for individuals who want to protect their homes from foreclosure.
Filing for Chapter 13 bankruptcy triggers an automatic stay, which halts all collection activities, including foreclosure proceedings. This “stay” provides temporary relief and allows you the opportunity to reorganize your debts and develop a repayment plan/strategy that includes your mortgage arrears. Some of these Chapter 13 strategies to avoid foreclosure include:
- Repayment Plans in Chapter 13 Bankruptcy: Chapter 13 allows homeowners to create a structured repayment plan that extends over three to five years. This plan incorporates your mortgage arrears, allowing you to catch up on missed payments gradually while protecting your home from foreclosure. By adhering to the repayment plan, you demonstrate your commitment to fulfilling your financial obligations and retaining ownership of your home.
- Mortgage Modification in Chapter 13 Bankruptcy[3]: One significant advantage of Chapter 13 bankruptcy is the potential for mortgage modification. Under this provision, you can work with your mortgage lender to negotiate more favorable loan terms. This could include reducing the interest rate, extending the repayment period, or even adjusting the principal balance. By modifying your mortgage, you can make your monthly payments more affordable, reducing the risk of default and increasing your ability to retain your home.
- Sale of Property: Chapter 13 bankruptcy provides the homeowner the opportunity to sell the home within a specified time approved by the court. This allows the homeowner to stop the foreclosure sale and sell the property themselves in order to avoid being evicted from the foreclosed home or losing any equity to the bank the homeowner may have on the property.
WHAT ARE OTHER ADVANTAGES THAT NEW JERSEY HOMEOWNERS MAY HAVE WHEN IT COMES TO CHAPTER 13 BANKRUPTCY?
Chapter 13 bankruptcy provides additional benefits for homeowners. It offers a mechanism to “strip off” or eliminate second mortgages or lines of credit secured by the home if the value of your home is lower than the outstanding balance on the first mortgage. This can significantly reduce your overall debt burden and improve your ability to retain your home.
Conclusion
In summary, Chapter 7 bankruptcy allows for the protection of your home through the use of homestead exemptions. If your equity is within the exemption limits and you can continue making mortgage payments, and stay in your home.
On the other hand, Chapter 13 bankruptcy offers homeowners a structured repayment plan that includes mortgage arrears, allowing you to catch up on missed payments gradually. It also provides the opportunity for mortgage modification, making your mortgage terms more favorable and increasing your ability to retain your home. Additionally, Chapter 13 may allow for the elimination of second or subsequent mortgages if the home's value is lower than the balance on the first mortgage.
Ultimately, the decision between Chapter 7 and Chapter 13 bankruptcy should be made in consultation with a bankruptcy attorney. They will assess your specific financial situation, evaluate the potential outcomes, and guide you towards the best course of action to protect your home during the bankruptcy process.
Perhaps the most crucial piece of advice is to consult with a qualified bankruptcy attorney. A bankruptcy attorney will guide you through the process, ensure compliance with legal requirements, and advocate for your best interests. We are well qualified as a full-service bankruptcy law firm for people in this county and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, Union County, and Sussex County. We possess the knowledge and expertise to navigate the intricacies of bankruptcy law and devise a tailored strategy to protect your home. If you need assistance, call us today at 973-554-9827 or toll free 973-696-8391.
[1]https://www.bloomberg.com/news/articles/2023-04-19/foreclosures-on-us-properties-continued-to-rise-in-first-quarter
[2] https://www.law.cornell.edu/uscode/text/11/522
[3] https://www.njb.uscourts.gov/content/loss-mitigation-program-and-procedures-0
