If you are thinking about filing for bankruptcy, you’ve probably heard a lot of people say that you’re going to “lose everything.” If this is frightening you, you’ll be glad to learn that it is a myth. You won’t lose everything—though if you file for Chapter 7 property you will lose all non-exempt property.
This may mean your house and car or it may not, depending on your financial resources and what kind of a solution you can arrange with your lenders.
In the case of your car, there’s a really good chance you can keep it. An old car which isn’t worth that much probably won’t be seized and sold. A leased car may also be left alone as long as you can keep paying off on your lease. Even a car you have a loan on may be left to you as long as you can pay off on your loan on time each month.
If you can’t keep up with the loan though the car will be seized and sold and the proceeds will be paid to your lender to discharge your debt. If you have an older car which is worth a lot of money and which you own outright, it will probably be seized and sold as well, and the proceeds will be used to pay off various creditors.
As for your house, this is like the situation with a car which you’re paying a loan on—if you can keep paying the loan, you can keep the house. If you can’t though, the house will be auctioned off by the trustee of the district court and the proceeds used to pay off your mortgage and discharge your debt to the bank.
There is another type of bankruptcy called Chapter 13 bankruptcy which a lot of individuals file for and which may make it more likely that you’ll be able to keep this non-exempt property.
Chapter 13 bankruptcy doesn’t discharge your debts within a few months like Chapter 7 bankruptcy. Instead it puts you on a consolidated payment plan which reorganizes all your debts into one lump sum which you pay the court each month.
After a few years of paying this lump sum each month on time, the court will discharge your remaining debts, except for those which it cannot discharge (certain types of debts can never be discharged). The lump sum you owe each month to the court is based on your estimated income over the coming years.
Since the lump sum is intended to be more manageable and to include your current obligations to your home and car lender, you should be able to keep both your house and your car with Chapter 13 bankruptcy. Note that you do need to have a steady stream of income in order to be eligible for this type of bankruptcy. If your income exceeds a certain threshold you won’t qualify for Chapter 7 bankruptcy at all and will have to apply for Chapter 13 bankruptcy anyway.
Talk to an attorney who specializes in bankruptcy cases before you decide to file either type of bankruptcy. You don’t want to make any assumptions about what will happen to your property. It’s essential that you consult with a professional who has seen a lot of cases like yours and will be able to tell you what to expect as far as your house and car are concerned with both types of bankruptcy. The attorney will be able to help you decide what will be most beneficial to you and your family and how you can take the surest route to keep all of your property.
Filing for bankruptcy is going to have benefits and drawbacks, but if you make the right decision for your situation, you may be able to keep all of your property. You can’t jump into this without knowing what you’re doing though, which is why professional advice is so important.
This may just be the way for you to save your house if your mortgage is in default though. Don’t forget to look into the other options too like government programs which are designed to help homeowners in dire straits. Educating yourself is vital to financial recovery.