Several Ways Filing Bankruptcy Can Protect Your Ohio Home
Here are seven different ways in which bankruptcy can protect your home in the future or save it altogether.
1. Home equity protection:
You can usually protect any and all equity that you have in a house through bankruptcy. This is accomplished by claiming the “homestead exemption”, which allows you to protect equity in your home up to $136,925 per person. This applies in both chapter 7 and chapter 13 bankruptcies. For homeowners who don’t currently have equity in their house, bankruptcy can still protect future equity that may be built further down the road.
2. Home equity that is larger than the homestead exemption:
When you have equity that is worth more than your exemption, then a chapter 13 “adjustment of debts” will be able to do a better job than Chapter 7. Chapter 13 offers a lot more time and gives a more effective way to preserve your equity while remaining under bankruptcy protection.
3. Free up the cash flow of mortgage payments:
As long as you’re not falling behind on mortgage payments, you should be able to discharge various other debts in order to free up money for monthly house payments. It’s always a good idea to talk with a bankruptcy lawyer to hash out the specifics. He or she might be able to tell you for certain which debts will go away and which will stay.
4. Negotiate a forbearance agreement:
If you aren’t falling far behind with your mortgage payments, you can discharge other debts with a Chapter 7 bankruptcy. After that, you can negotiate a forbearance agreement with your lender in order to catch up on your payments. A forbearance agreement will give you an extension on your due payments.
5. Extra time to play catch-up:
Filing a Chapter 13 bankruptcy offers you three to five years to catch-up on your mortgage payments. This is more time than you’d generally get with a forbearance agreement. Mortgage payment arrearages will be more affordable when they are spread out over a longer period. Additionally, your lender isn’t allowed to take foreclosure action or any collection actions as long as your plan payments are made on time.
6. Prevent a foreclosure based on property tax:
You can pay back any past due property taxes after filing for a Chapter 13 bankruptcy. A Chapter 13 filing will stop a tax foreclosure and allow you to set up a plan to repay the property tax without the risk of losing your home. Your budget may also include money intended for property taxes due in the future. This will allow you to remain current going forward.
7. Eliminate a junior mortgage.
You can significantly reduce your mortgage debt by avoiding or “stripping off” a second or third mortgage from the home. If you owe more on your first mortgage that what your home is worth, you may be able to eliminate a 2nd and 3rd mortgage entirely. This can push your total debt on the house closer the home’s overall value.