Provide All Financial Facts Very Carefully
There are important principles for homeowners divulging financial information and facts during bankruptcy. Even a small mistake in estimating your equity or applying a homestead exemption could cost you your home if you’re found guilty of bankruptcy fraud.
Filing for bankruptcy for the average homeowner can be confusing and even scary at times so it is important to talk to your bankruptcy attorney if you have any concerns or are confused.
There are some essential principals to keep in mind if you are worried about your home within a bankruptcy case.
Keeping Your Home in a Chapter 7
In a Chapter 7, you can keep your home unless your equity exceeds the homestead exemption by about 10% or more. The amount of your homestead exemption usually determines whether or not you will lose your home in bankruptcy.
If you are behind on payments and you file bankruptcy, the court will usually allow the lender to proceed with foreclosure, upon request. However, the lender must prove that it is the correct party making the request so if the mortgage has been resold or repackaged it may be hard for them to prove this.
Mortgage Payments Continue
Most of the time you will have to continue making mortgage payments during bankruptcy to avoid foreclosure. If you fall behind on your mortgage payments, the Chapter 7 automatic stay won’t prevent foreclosure.
Mortgage modification generally requires you to reaffirm the mortgage. However, this can leave with you with much more debt you are responsible for after bankruptcy. So it is best to wait to file bankruptcy before modification is complete.
If you don’t reaffirm your mortgage, your lender probably won’t report your payments. This means your payments won’t help you rebuild your credit report and score, so it’s a bad idea to reaffirm solely to rehabilitate credit.
If you have a second and third mortgage and you have trouble keeping up with your house payments, you may have to consider default on your second and third mortgages first. While not optimal, the consequences are more severe if you default on your first mortgage.