Thomas Law Office, PLC
Can Someone Lose Their Home If They File For Chapter 7 Bankruptcy?
A person can lose their home if they file for Chapter 7 bankruptcy protection. But don’t panic. In Arizona, it is rare to see a person lose his home because he filed for Chapter 7 bankruptcy protection. This is because the homestead exemption most people in Arizona is $150,000. What this means is if your equity in the property is less than $150,000, there’s a good chance that you’ll be able to keep your house. However, if your equity is higher than $150,000, you could lose the house. You must be residing in the house in order to get the homestead protection. If you reside elsewhere or have a second home, you cannot apply the homestead to more than one of the properties.
Another problem arises when a person is behind on payments in a Chapter 7 bankruptcy. If that happens, the creditor will file what is called a motion to lift the automatic stay. The automatic stay is the protection that automatically goes into effect in Chapter 7 cases when the case is filed. It prevents the creditor from suing the debtor, maintaining an already-filed lawsuit, garnishing wages or bank accounts, foreclosing on real estate, etc. The creditor will ask the judge for permission to pursue a foreclosure action even though the Chapter 7 case has been filed. The judge will almost always say yes.
The creditor will then proceed with a foreclosure or trustee sale, and you will eventually lose your property unless you can negotiate a deal with your lender. The other option in that situation is to convert your case to Chapter 13 if you qualify, and force the lender to accept payments on the arrears (the missed payments) over a period of three to five years. But for the vast majority of people who file for Chapter 7 bankruptcy protection in Arizona, they are able to keep their homes (and often their cars, too). You should obtain a consultation from a bankruptcy attorney to make sure that you will not lose your home if you file for Chapter 7 bankruptcy protection.
If you are facing foreclosure before you file for bankruptcy protection, you’ll need to consider a Chapter 13, because that may be the only way you can force your lender to let you make up your missed payments over a three to five year period of time. There is much at risk in bankruptcy cases and you’d be unwise to file your own case. Mr. Thomas has seen people lose homes, inheritances, valuable assets, and large sums of money because they were being penny wise but dollar foolish. Save up your money and have a professional handle it for you.
Does A Person Have Any Options Regarding Liquidation Of Secured Debt In A Chapter 7 Bankruptcy?
One of the decisions you will have to make if you want to file a Chapter 7 case but you know that you will lose certain secured assets if you so, is whether you want to attempt to work out a deal with the unsecured creditors rather than file the Chapter 7 bankruptcy. A common example is a person who owns a home and has equity in that home that is above the exemption amount. For example, if your exemption amount is $150,000, the house is worth $300,000, and the loan balance is $100,000, you will have $50,000 in equity. The bankruptcy trustee in a Chapter 7 case may force the sale of the home, pay the $100,000 loan balance, give you the next $150,000, and distribute the rest of the money to the unsecured creditors.
Rather than losing your home in that manner, you could sell the home and work out deals with your creditors. This is very tricky and could backfire easily. We at Thomas Law Office have lots of experience working out settlements with creditors. However, far more often than not, it will make more sense for a person in this kind of situation to file a Chapter 13 bankruptcy. Another option in this example would be for the client to find a relative or some third party who will give or loan them the funds to “buy back” the unprotected equity ($50,000, or probably less if a deal is negotiated). This would enable the person to avoid a Chapter 13 bankruptcy – which most debtors would prefer to avoid if possible because of the long amount of time, higher cost, and other inconveniences – and still keep the home. Also, it is important to analyze whether the asset really can be seized by the Chapter 7 trustee.
There can sometimes be legal or practical obstacles that would significantly reduce the likelihood that the trustee will actually pursue the asset. Because the trustee is paid on a sliding scale percentage basis for assets he can take from you and distribute to your unsecured creditors, he has an incentive to try to bluff you into believing that he will seize and sell the asset unless you agree to pay a large sum of money to keep it. An example that comes to mind is a case we had many years ago. The client owned a bakery. The Chapter 7 trustee send a very threatening letter indicating that he would be seizing and selling the bakery. After a careful analysis by our office, we determined, with the help with a business valuation expert, that the bakery would be very hard to sell for at least a year or two because of major road construction and a mass transit system that would be installed.
The result would be much less foot traffic and significantly reduced sales. The trustee was very aggressive and did not care what we said to him. So we elected to call his bluff and sat back to see if he actually followed through. He didn’t. Our client got to keep the bakery without having to spend a single penny to the trustee or the bankruptcy court. It is vital that you have an attorney on your side when you undertake a major legal and financial step such as the filing of a bankruptcy case. There are traps for the unwary, and there are ways of protecting assets in a legal way that would probably never occur to you if you don’t have a deep understanding of the bankruptcy code, a knowledge of the cases interpreting the code, and the experience of having seen many situations in real life that enable you to accurately predict what is likely to happen with regard to various issues in your case.
For more information on Losing Your Home In A Chapter 7, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling today.