Filing For Bankruptcy? Know The Impact On Your Home
Have you found yourself in a financial situation where you need to file for bankruptcy? If so, you're likely wondering what the impact is on your home. Here is what you need to know about what will happen.
Know The Difference Between Bankruptcy Types
There are two types of bankruptcies that are commonly used by individuals, which are Chapter 7 and Chapter 13. When you file for Chapter 7 bankruptcy, it is going to wipe out those unsecured debts that you have. The secured debts are paid off by selling assets and distributing them to your creditors at prorated amounts.
Chapter 13 is a bit different since it is an organizational form of bankruptcy. You are getting rid of the interest, penalties, and fees that you may owe, and the creditors are getting money back as well. They will likely not get all of their money back though, since it is dependent on your repayment plan and what you can afford to pay.
Know That Bankruptcy Provides An Automatic Stay
No matter which form of bankruptcy you use, each of them uses an automatic stay to place a pause on the debts that you owe and prevent creditors from coming after you. The automatic stay can actually put a pause on the foreclosure of a home, giving you more time to sort out your financial situation. However, you'll need to continue to make your monthly mortgage payment during the bankruptcy.
Know That The Home May Be Sold
The need to sell your home will really depend on how much equity you have paid into the home and how many debts you need to pay. If you recently purchased the home and there is not much equity, then it would be pointless to sell the home because there would be no profits made from it to go toward your debts. If someone has a lot of equity in their home, they may be forced to sell the home.
State laws determine how much of a homestead exemption you can have during the bankruptcy process. This allows you to keep some of the proceeds from the sale so that you can put a down payment on another home or use that money for rent. If your equity is below the exemption threshold, you'll likely keep your home. For example, the state of Illinois has a $15,000 homestead exemption for individuals and $30,000 for couples, which is yours to keep no matter how much debt you want to discharge with a bankruptcy.
Reach out to a firm like Supple Law Office, PLLC for more information.
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