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If I file a chapter 7 bankruptcy, can I keep my house?

If you are current on your mortgage payments and can continue to make them, whether you keep your home in a chapter 7 case depends on the amount of equity you have in the home. If the equity in your home is fully exempt, you should be able to keep it. This is an issue that must be carefully analyzed prior to filing a bankruptcy case. If your home is significantly underwater or if you can’t afford the mortgage payments, see below.

If I file a chapter 7 bankruptcy, can I keep my car?

That depends on several factors, including the car’s value and how much of the value is exempt.

If you have a balance on a standard auto loan, you can reaffirm the debt (promise to repay the loan during and after bankruptcy). There are pros and cons to reaffirming, but that is one of the ways you can keep the car.

Another option is to redeem the car by paying its current value to the lender. This is a more complicated procedure because the lender has to agree to the amount, but could benefit you if you owe more than the car is worth. You also have to come up with the funds to pay the lender. There are companies that make loans for this purpose.

Finally, you have the option of filing a chapter 13 or converting to a chapter 13 for the purpose of paying the amount you owe on the car loan over 3 to 5 years.

I can’t afford my mortgage payment and I want to get out of this obligation. Is bankruptcy an option?

There are a number of options when your home is unaffordable.

Selling the house for the amount owed may be the best option. A short sale may also be an option, but personal and/or tax liability may result from selling your home for less than the amount owed on mortgages and home equity loans. This is a complex analysis, so you should consult with an attorney before moving ahead with a short sale.

More options have become available through government homeowner relief programs. (See the Links for Consumers page.)

Bankruptcy may be a good option when, in addition to the unaffordable mortgage, you have unsecured debts that are problematic. If you have high credit card debt, past due medical bills, or judgments arising from unpaid debts, bankruptcy can discharge these debts and release you from the unaffordable mortgage, if that is what you want.

I’m married. Does my spouse have to participate in the case?

You can file bankruptcy as an individual, but your spouse will participate by providing information, which will be included in the bankruptcy petition and schedules.

Filing a bankruptcy case creates a set of property called the bankruptcy estate. As a married person, all of the community property (jointly owned property) becomes part of the bankruptcy estate. Therefore, while your spouse does not need to enter into bankruptcy with you, his or her cooperation is important. The non-filing spouse benefits from the bankruptcy by having certain shared  debts discharged, while retaining his or her right to file a separate bankruptcy case at any time in the future.

What is a trustee in a chapter 7 case, and what does he or she do?

The trustee is an officer of the court who is appointed to examine the debtor, collect nonexempt property, liquidate nonexempt property and pay creditors with any funds that are available. In addition, the trustee is responsible for seeing that the debtor fulfills his or her legal requirements during the case. If a debtor does not provide necessary information or complete a required step, the trustee may move to dismiss the case.

What will happen to my credit if I file for bankruptcy?

In most cases, bankruptcy will cause your credit rating to drop. However, that is not always the case. If you have made late payments or no payments on your debts, your credit has already been affected.  If your credit is further affected by a bankruptcy,  you can start rebuilding your credit  soon after the case is concluded. There are companies that actively solicit business from recent bankruptcy filers because he or she cannot get another discharge for the next 8 years. By using these sources of credit (carefully!) you can improve your credit score.  Creditors consider your score and your recent credit history when deciding whether to extend credit; the fact that you’ve had a bankruptcy discharge in the past will not be a bar to future credit.

If you are in a chapter 13 bankruptcy (for 3 or 5 years) your credit score may go up during the bankruptcy if you make the payments set by the plan, and also keep mortgage payments current.

If I file for bankruptcy, will I be able to buy a house in the future?

It is entirely possible for you to buy a house after a bankruptcy. Some time and a conscious effort to raise your credit rating will be required. Most lenders will not approve a mortgage loan if you apply within two years of your bankruptcy discharge. During these two years, you can improve your credit by obtaining new credit accounts (such as a car loan or credit card) and making debt payments on time. The ability to make a significant down payment will also increase your chances of getting a mortgage loan.

I have no savings and very little cash right now. How can I afford to pay a bankruptcy attorney?

The easiest way to afford bankruptcy is to stop making payments on credit cards and other unsecured debts. The money that was previously used to pay these bills can be saved and used to pay attorney’s fees. Also, once you have decided to file for bankruptcy, you might be able to get help from friends or family. Although personal loans would be discharged like other unsecured debts, that does not prevent you from voluntarily repaying the friend or family member after the bankruptcy case is concluded.

If you are considering a chapter 13 case, you can pay a portion of the fees prior to filing the case, and the remainder through your chapter 13 plan.

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