Bankruptcy can be absolutely final. On the other hand, between exemptions and certain other bankruptcy law provisions, you may spare your home from liquidation in the process. At Huntsman | Lofgran, PLLC, our attorneys help you navigate bankruptcy law and consider all your options. Our Midvale law firm provides big-firm capabilities with a small-firm, more personal level of attention.
If you have kept current on your payments for your mortgage and other home-secured debts but are considering borrowing against your home in order to pay down a large debt, you might do better to consider filing for Chapter 7 bankruptcy.
Consider what would happen if you borrowed against your home: Incurring long-term indebtedness against your primary residence ties up the equity in your home and often results in high monthly payments, which you may not sustain over the duration of the loan. You might find your lender moving to foreclose on your home.
Now consider what would happen if you filed for Chapter 7 bankruptcy: As long as your equity in your home is close to the Utah exemption for a primary residence — $20,000 for a filing individual, $40,000 for a filing couple — there is no advantage to the bankruptcy trustee to sell your home. Chapter 7 bankruptcy then eliminates most of your other unsecured, debt, and you emerge from it with the equity in your home intact.
This does not work for those who have more equity in their home than the exemption limits because the trustee may want to sell your home to unlock that excess equity to pay down your debt to your creditors. In that case, though, Chapter 13 bankruptcy may be the way to go.
Chapter 13 bankruptcy offers significant protection for debtors who have fallen behind on their home mortgage payments. Remember that Chapter 13 essentially consolidates your debts. You make a single monthly payment to your bankruptcy trustee, who then distributes the funds among your creditors over a three- to five-year period. In agreeing to your Chapter 13 repayment plan, your lender is required to accept the repayment of all mortgage arrearages you make through your plan.
Keep in mind that this only works if you are also making your regular mortgage and other secured loan payments during the three-to-five year period, as well. Upon the successful completion of your repayment program, you are released from your pre-bankruptcy unsecured debts and simply keep making your secured debt payments — and you can keep your home.
Another advantage to Chapter 13 bankruptcy is that it permits the court to convert second and third liens on your home (typically, equity refinancing or home loans) from secured debt to unsecured debt. Unsecured debt left at the end of your repayment plan is typically forgiven.
By the way, if a home lender holding a deed trust against your home has initiated foreclosure, your bankruptcy filing stops the foreclosure sale process immediately. This is true even if you file one hour before a foreclosure sale is set to close. That may be of little help if you are filing Chapter 7 bankruptcy, but if you are filing Chapter 13, you can give yourself a chance to repay the mortgage and other secured loan arrears and retain your home.
Bankruptcy law can get pretty complicated, so it pays to retain the services of lawyers who know their stuff. Call Huntsman | Lofgran, PLLC at 801-474-0031 to see just how helpful our legal team can be, or contact us online today. Our Salt Lake City office is just two miles east of Route 15 on East Fort Union Boulevard in Midvale.