More Ways Chapter 13 Bankruptcy can Save your Home
In addition to the 5 other ways that filing a Chapter 13 in Indiana can save your home, here are 5 more ways that filing chapter 13 can save your home.
Chapter 13 can provide you with more time to sell your home.
If you are trying to sell your home in order to avoid foreclosure or you want to get some of that hard earned equity back out of your house, the filing of a Chapter 13 bankruptcy could give you considerably more time to sell your home. Often a chapter 13 plan can provide you with additional time to accomplish these goals. That means you’d have more market exposure, which gives you a better chance of selling your home at a better price. That’s especially true if you are being forced to sell during a traditionally slower time of the year. It could also help with your trying to sell the home in a short sale (in which the house is worth less than the amount of the mortgage(s) against it) or doing a deed in lieu of foreclosure (deeding the home back to the mortgage company).
If you are behind on your mortgage payments and have a foreclosure scheduled, filing a Chapter 7 case will usually only buy you an extra three months or so, but your mortgage company could push for a shorter time period if it decides to hurry the process. Often the only way to stop a foreclosure without filing Chapter 13 bankruptcy is by paying the entire back payments—as well as late charges, foreclosure fees and attorney fees—all in a lump sum. This can easily total tens of thousands of dollars. Fortunately, a Chapter 13 lets you file a plan of reorganization that tells your mortgage creditor that you will make your regular monthly mortgage payments each month as they come due and that you will pay your back mortgage payments over a period of 3 to 5 years with no interest or late fees. Sometimes paying the regular mortgage payment and past payments is impossible and the chapter 13 plan can be used to buy you time until the home is sold.
Deal effectively with child/spousal support liens against your home
Chapter 7 does nothing to stop collection efforts against you if you are behind on your child or spousal support obligations, which can affect your home in two ways.
First, support obligations usually turn into liens against the real estate you own, including your home. This gives your ex-spouse the ability to force the sale of your home to pay the support arrearage. If a lien for unpaid support was already attached to your home before your bankruptcy is filed, then Chapter 13 would stop the execution of that lien as long as you comply with your Chapter 13 plan. Your plan must show how you are going to pay the back child support before your case is completed, and you must stay current on those Plan obligations. But as long as you do all this, the support lien cannot be executed against your home. Instead, the underlying support debt is paid off and the lien will be released, with no further risk to your home.
Second, if no support lien has been placed on your home, a Chapter 13 would prevent it from happening. Instead, you’d have the opportunity to pay off the support debt while under bankruptcy protection thereby avoiding a lien from ever being placed against your property.
More effectively address an income tax lien on a dischargeable tax debt
If you owe the Internal Revenue Service or the Indiana department of revenue, there could be a tax lien or tax warrant that has been recorded against your home. If the underlying tax can be discharged—because it is old enough and meets the other conditions for a dischargeable tax debt—then dealing with the lien is likely better under Chapter 13. Depending on the amount of equity you have in your home, under Chapter 7 the IRS or other taxing authorities mill most likely not release the tax lien even after the underlying tax debt is discharged. In contrast, a Chapter 13 case has an established mechanism for determining the value of that lien, and for paying it, so that at the completion of your case the tax debt is discharged and the tax lien is satisfied.
Property tax arrearages are also handled well under Chapter 13
Usually, your mortgage requires you to be current on your property taxes. Failure to pay property taxes gives your mortgage lender another reason to foreclose. Your Chapter 13 Plan will demonstrate how you will pay off your property tax arrearage, so as long as you comply with your Plan obligations you will eventually catch up on your property taxes. Besides stopping any threat of tax sale itself, your Chapter 13 case also stops your mortgage lender from arguing that you are in breach of your requirement to stay current on the taxes.
Prevent a Chapter 7 trustee from taking your home if it has more value/equity than the applicable Indiana homestead exemption
If you have more equity in your home than the Indiana homestead exemption allows, you risk losing your home in a Chapter 7 case. That risk is greater than usual now because the irregular housing market makes property values difficult to accurately predict. Also, you would be amazed at the discretion that Chapter 7 trustees own. Most local attorneys know how aggressive the local chapter 7 trustee will be but it is still difficult.
In contrast, Chapter 13 provides a much more predictable procedure for determining the value of a home and a mechanism to prevent a chapter 7 trustee from selling your home out from underneath you.