- Will I lose my house if I file for Bankruptcy?
- Can I stop Foreclosure Action once I file?
- How Much Time Do I have before I Must Move Once My Lender Forecloses?
- Can I Continue to Collect Rent from My Tenants Before the Foreclosure Sale?
- Will I Lose Everything I own if I File for Bankruptcy?
- What happens to my Retirement Accounts?
- What Debts Will Not be Discharged in Bankruptcy?
- How is Eligibility to File Chapter 7 Bankruptcy Determined?
- Do I Have to Go Through Credit Counseling Before I File?
- How will my bankruptcy affect my spouse or former spouse?
- What Happens to My Credit After Bankruptcy?
- How Do I Rebuild My Credit?
- How Soon After Bankruptcy Can I Obtain a Mortgage or Car Loan?
Will I lose my house if I file for Bankruptcy?
In most cases, the answer is no. Once your bankruptcy case is completed and all of the other unsecured debts (credit cards, etc) are discharged, there will be a lot more income available to pay your mortgage. So long as you are current with the first mortgage lender, you can certainly keep your house. If your second mortgage is wholly unsecured due to current market conditions (i.e. the house is currently worth $400,000, the first mortgage is $410,000, and the second mortgage is $100,000, the second mortgage is wholly unsecured), Chapter 13 bankruptcy can further help you keep your house by stripping away the second mortgage lien, allowing you to stay in your house and only repay the first mortgage. If there is any equity to cover the second mortgage, lien stripping will not be an option. If the current market value of your house has dropped near what you owe on the first mortgage, it’s worthwhile consulting with a local San Diego bankruptcy attorney to determine if you should file a Chapter 13 case just to get rid of that second mortgage.
Note that bankruptcy does not excuse homeowners from paying the mortgage. A debtor who wants to keep her home must continue to pay the mortgage, which is a secured debt. Filing a bankruptcy petition will not ultimately prevent a bank from foreclosing if payments are delinquent.
Can I stop Foreclosure Action once I file?
Certainly, a bankruptcy filing can stop a foreclosure up to the moment a Memorandum of Sale is signed. However, the automatic stay only lasts until (i) the lender makes a Motion for and obtains relief from the Automatic Stay, (ii) the Trustee agrees to abandon the property, (iii) the debtor’s petition is dismissed, or (iv) the debtor’s petition is discharged. Lenders can frequently get relief from stay to foreclose on property if the debtor has no equity or if the property is not insured.
How Much Time Do I have before I Must Move Once My Lender Forecloses?
If the property is owner occupied, you have 60-days to move out, provided that the lender provides you with property notice that complies with the unlawful detainer statutes.
Can I Continue to Collect Rent from My Tenants Before the Foreclosure Sale?
Yes, but once the foreclosure sale is final, the lender becomes the new owner and your right to collect rent from your tenants will terminate.
Will I Lose Everything I own if I File for Bankruptcy?
Most people have the misperception that they will lose all of their property if they file for bankruptcy. Fact is, only non-exempt property will be eligible for sale by the bankruptcy trustee in a Chapter 7 bankruptcy. What does this mean? As a matter of public policy, every state including the California legislatures have enacted exemption laws to ensure that those who seek bankruptcy protection are able to retain property through the process. Exemption laws vary by state and property that is exempt are protected from creditors. For example, California’s regular Section 704 exemption allows a married couple filing a joint bankruptcy case to protect $50,000 of equity in their home. Therefore, assuming they could afford the payments, this hypothetical couple could keep their home through the bankruptcy process as long as home equity does not exceed $50,000. The same principle applies for cars. If you currently owe $10,000 on a car that is worth $12,000, the California exemption statute will allow up to $3,300 of equity in the car to be protected from your creditors if you choose the Section 703 special exemptions.
You will absolutely be able to file bankruptcy to shed burdensome debt while retaining your property.
What happens to my Retirement Accounts?
Up to $1,000,000 in qualified retirement plans are protected from creditors in a bankruptcy proceeding.
What Debts Will Not be Discharged in Bankruptcy?
Certain debts cannot be discharged in bankruptcy. Examples include: child support, spousal support, student loans, court restitution orders, criminal fines, certain obligations to governmental agencies and debts that arise after your bankruptcy has been filed. In rare cases, student loans can be forgiven if you can prove extenuating circumstances that prevent you from working.
Creditors also have the right to object to the discharge of certain unsecured debts, such as large purchases or cash advances made within 90 days of filing. And any cash advance of $750 or more taken within 70 days before filing is also considered non-dischargeable.
How is Eligibility to File Chapter 7 Bankruptcy Determined?
Under the new bankruptcy rules, you qualify if your average income for the past six months before filing is lower than your state’s median. To check the California state’s median income, click here.
If your income is above the California state median family incme, you will have to take a three step means test. You won’t qualify for filing Chapter 7 if you have enough disposable income to pay off $10,950 or 25% of your unsecured debt over five years. Disposable income is determined by subtracting from your income basic expenses such as housing, car payments, food and so on. These will not be your actual expenses, but rather the “allowable living expenses” determined by the IRS. (To see the national standards for allowable living expenses, click here.)
Do I Have to Go Through Credit Counseling Before I File?
The new bankruptcy laws require that each individual bankruptcy filer must submit paperwork certifying that you have completed a two-hour credit-counseling session with an approved credit-counseling agency within six months before filing bankruptcy. Once your case is fled, you must also complete a financial management course in order to close your case and obtain discharge. The courses can be taken in person, over the phone or online. The cost is covered in the flat fee charged by our office. For a list of the agencies approved to provide such courses, click here.
How will my bankruptcy affect my spouse or former spouse?
A spouse or former spouse will only be affected if he or she is also liable for debts. If a spouse guarantees payment on a loan or cosigns on a credit card, the creditor will look to that spouse for payment when a petition is filed. If the parties are divorced but jointly liable on obligations, the bankruptcy of one will cause the other to become solely liable for the obligations. If married partners are liable on debts, and none individually owns non-exempt property such as a house, a joint bankruptcy petition should be filed.
Alimony and child support are not dischargeable. Where one spouse agrees at the time of divorce to pay a greater share of marital debt in exchange for lesser support payments, the obligation to pay marital debt will be considered nondischargeable support.
What Happens to My Credit After Bankruptcy?
Filing for bankruptcy will unfortunately cause your credit to take a hit. Just how badly it will suffer depends in part on how high it was before you filed (the higher the number, the better), and how many accounts you are including in the bankruptcy. You can order your credit score from Fair Isaac. Once you purchase it, you can simulate what will happen to it if you file bankruptcy with Fair Issac’s credit-score simulator.
How Do I Rebuild My Credit?
After filing bankruptcy, many people are afraid to take on new credit because it was credit that got them in trouble in the first place.
But not doing so can hurt you later on, particularly if you plan to take out a car loan or mortgage. With a credit-rebuilding plan, you could see your score shoot above 600 in six months.
For example, you need to make sure all of your accounts are listed in your credit reports as charged off or included in bankruptcy. For Chapter 7, they should also show balances of zero. These accounts will remain on your reports for seven years, but you may call your creditors and ask them to stop reporting them to the bureaus. They don’t have to do it, but it doesn’t hurt to try. If you were able to remove even a couple of charge-off accounts from your record, it would boost your credit score.
Also, get new credit cards. Credit-card companies won’t be anxious to extend you new credit once they see the bankruptcy note on your record, but you could get a secured credit card, which is basically a regular credit card backed by a security deposit you leave with the card issuer for as long as you have the account. Your credit limit will be equal to the amount of your deposit, which will be returned to you in full when you close the account or graduate to a regular, unsecured card. One thing to keep in mind is that secured credit cards usually carry an annual fee and higher interest rates.
Another credit-rebuilding strategy is “piggy-backing” on someone else’s credit by asking a friend or relative to add you as an authorized user on one or more credit-card accounts. You won’t be responsible for the bills, and you won’t have access to the credit cards unless the original owner wants a copy to be sent to you. The primary cardholder’s credit record won’t be affected in any way by your bankruptcy. But you would get the benefit of their credit history right away, she says. The potential drawback is that your own credit could be damaged if your credit benefactor gets into financial trouble.
How Soon After Bankruptcy Can I Obtain a Mortgage or Car Loan?
You don’t have to wait for the bankruptcy notation on your record to expire before you apply for a mortgage or car loan. These days, you can get a mortgage within a year after bankruptcy. Due to the recent economic downtown and unprecedented number of individuals (and businesses) who have filed for bankruptcy, many mortgage lenders are more eager to lend to those who have very little to no debts after bankruptcy than someone who has not filed for bankruptcy but has many other debts. On average, most mortgage lenders will still want to see about a year’s worth of on-time payments on various accounts, such as your cable and utility bills. You might not get the lowest rates possible, but many of my clients have gotten new mortgages in about a year and half after filing for bankruptcy. The same applies to car loans.
If you have any additional questions, please email or contact the Law Office of Cecilia Chen at (858) 633-0171.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.