If you are behind on your mortgage and want to save your home then you definitely want to file a Chapter 13. If you are doing any arrearage cure and resume future mortgage payments, then you will not lose your home. However, if you are behind on your mortgage and file Chapter 7, the mortgage company will either lift the bankruptcy stay to resume foreclosure or continue foreclosure after you are discharged since there is no stay after you are discharged. There is only a discharge injunction. However, that deals with personal liability and foreclosure is going after the property only.
The biggest confusion is whether you will lose your home if you are current on your mortgage payments. This is solely based on a liquidation analysis.
Under the federal exemption statutes, which are much better than New Jersey, there is a $23,625 real estate exemption. This if you have a home worth $200,000 and you owe $160,000, you will not lose the home since the formula is as follows:
$200,000 – $20,000 (10% cost of sale) = $180,000
-$160,000 = $20,000
Since the exemption is $23,625 you would be protected if you are current with the mortgage.
However, there is still always the issue of valuation. Just because your Realtor says the home is worth $200,000, the trustee’s Realtor can say the home is worth $220,000, which would mean your home has too much equity and he wants to sell it. Thus, if there is close call, it may be better to start with a Chapter 13 so there is no possible issue of a trustee selling your home. If your home has no equity at all then a Chapter 7 trustee won’t usually questions your market analysis. However, if there is ever a concern, the conservative thing to do is to file a Chapter 13.
Steven N. Taieb, Esq. is here to help you and is a South Jersey Bankruptcy Attorney who has helped over 7000 people with their financial problems for the past 32 years and is board certified in consumer bankruptcy law by The American Board of Certification which is accredited by The American Bar Association.
We are more than happy to discuss all your options and to see if bankruptcy is the best option for you.