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Can Bankruptcy Save My Property?


Bankruptcy can be a great option to rectify many challenging financial situations, including loss of property. If you are being threatened with foreclosure, car repossession, or any other loss of property that is important to you and your family, here’s why you may want to consider filing for bankruptcy.

Stopping Foreclosure

Facing foreclosure is, no doubt, an extremely scary situation. Many people who are being threatened with foreclosure often feel helpless and concerned for their future — especially when it involves family. No matter what circumstance has brought you to foreclosure, here are some ways Chapter 13 bankruptcy may help alleviate this problematic situation:

  • Catch Up on Your Mortgage Payments
    Chapter 13 can save you from foreclosure through a repayment plan by allowing you to catch up on your mortgage payments. Once you file for bankruptcy, an automatic stay will go into effect. An automatic stay stops mortgage lenders and other creditors from moving forward with foreclosure proceedings.

  • Your Second Mortgage May Be Discharged
    Many homeowners have second mortgages. Unlike a primary mortgage, in bankruptcy, a second mortgage is treated as unsecured debt and could be discharged completely. Consult a bankruptcy attorney on the best plan of action when it comes to relieving second mortgage debt.

How An “Automatic Stay” Works

The automatic stay is one of the most helpful tools when filing for bankruptcy. U.S. bankruptcy law prohibits creditors and debt collectors from contacting debtors as well as stoping them from pursuing any further legal action while the individual is completing the bankruptcy process. However, there are some instances in which a creditor may seek to lift an automatic stay. Here are some common reasons a creditor may try to lift an automatic stay:

  • Secured Credit
    If you’ve filed for Chapter 7 bankruptcy, but are behind on your mortgage or car payments, your lender could attempt to lift an automatic stay to continue with foreclosure proceedings.

  • Equity Cushion
    If there isn’t enough equity to cover the loan, then your creditor could file a motion to lift an automatic stay.

  • Unsecured Credit Accounts
    Typically, when filing for Chapter 7 bankruptcy, creditors won’t attempt to lift an automatic stay unless your unsecured debt will not be discharged through bankruptcy. If you’ve filed for Chapter 13 bankruptcy, most of your debts will not be discharged and included in a debt reorganization payment plan, so there would be no need for the creditor to lift an automatic stay.

While the thought of having an automatic stay lifted may be disconcerting, your bankruptcy attorney will know how to handle these situations and guide you on what you should do.

Know the Difference Between Secured and Unsecured Debt

When it comes to saving your property through bankruptcy, it’s essential to understand the difference between secured and unsecured debt, and how each one works in bankruptcy.

  • Secured Debt
    Secured debt is a guaranteed (secured) loan, backed by collateral. If you fail to make payments on your secured debts, then the creditor that holds the loan can take your property without having to take you to court. The following are examples of secured debt:
    • Mortgage or refinanced mortgage
    • Car loans
    • Home equity loans
    • Home equity lines of credit
  • Unsecured Debt
    Unlike secured debt, collateral is not involved and is not attached to any property such as a house or car. Creditors are not permitted to take any property if you fail to make payments on your unsecured debt. The following are considered unsecured debts:
    • Credit cards
    • Medical bills
    • Personal loans
    • Payday advances

The Importance of the Means Test in Bankruptcy

If you’ve already decided to file for Chapter 13 bankruptcy to save your home and other property, you may not necessarily be required to take the means test. Typically, the means test is a tool used when filing for Chapter 7 bankruptcy. The means test is designed to determine if your income is low enough to file for Chapter 7 bankruptcy. However, a low monthly income isn’t a condition for passing the means test.

If you make a more substantial salary but have an enormous amount of debt, such as a large mortgage and car payments, you may still be eligible to file for Chapter 7 bankruptcy.

How Does the Means Test Work?

The means test takes your current monthly income and deducts all monthly expenses to determine disposable income. The higher your disposable income, the less likely you will be eligible to file for Chapter 7 bankruptcy.

The Benefits of Filing Chapter 13 Bankruptcy

Besides saving your home, car, and other types of property, Chapter 13 bankruptcy can relieve many other kinds of problems that come along with debt:

  • Stop harassing phone calls from creditors and collectors.
  • Protection for third parties – creditors will not be permitted to go after co-signers on your debts.
  • Eliminate credit card debt.
  • Stop wage and bank account garnishments.
  • Alleviate certain tax debts.

What is the Best Bankruptcy Option for You?

Making the decision to file for bankruptcy isn’t an easy one. Both Chapter 7 and Chapter 13 bankruptcy offer many benefits for individuals who want to get out of a messy debt situation. Depending on the type of debt you want to alleviate, will determine the type of bankruptcy you should file.

  • When to File for Chapter 7 Bankruptcy
    If you pass the means test, Chapter 7 bankruptcy and have a lot of credit card debt, medical bills and/or other types of unsecured debt, Chapter 7 bankruptcy may be your best option.

  • When to File for Chapter 13 Bankruptcy
    If you fail the means test or have an overwhelming amount of secured debt, Chapter 13 may be your best option. Chapter 13 bankruptcy can help avoid foreclosure, assist with repaying certain taxes through a repayment plan, and reduce your debt into one affordable monthly payment.

Bankruptcy law is extremely complicated, and without understanding it, you could be putting yourself at a disadvantage by filing for bankruptcy on your own. If you are struggling with mounting debt or are concerned about losing your home, car, or other property, a bankruptcy attorney can help. Contact Wadhwani & Shanfeld today at (800) 996-9932 to explore your options and to learn more about how to protect yourself from creditors and get back to financial freedom.

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