Will I Lose My Home or Property If I File Bankruptcy?

by Paul R. Tom Basic Bankruptcy Information, Myths and FAQs

Just because you have filed bankruptcy does not mean that you lose your assets or possessions. The purpose of bankruptcy law is to give you a fresh start. In order to do that, there are exemption laws which allow you to protect and keep certain assets. In over 95% of the bankruptcies handled by Legacy Law Center, our clients do not have to turn over any property to the trustee. Even if there are assets that would be taken and liquidated by the trustee in a Chapter 7 bankruptcy, you can still keep them by filing a Chapter 13 bankruptcy and setting up a plan to repay all or only a portion of your debt.

Your Oklahoma homestead is totally exempt under the bankruptcy laws. This assumes you’ve lived there, or in another Oklahoma homestead, for at least the past 40 months… otherwise your home may only have an exemption for $125,000 of its equity value. “Equity” is what the house is worth less what you owe on it.

However, if you get behind on your house payments, your mortgage holder may foreclose on your property. Although the number of months you are behind may vary, once you get behind the mortgage holder can refuse to accept any further payments unless you pay the full amount of back payments. If you are unable to do so, your mortgage holder may demand that you pay off your home in full. When you cannot do this, the mortgage holder usually starts a foreclosure lawsuit. When a foreclosure gets to the point of sale your home is auctioned off to the highest bidder, usually the mortgage holder. If the price received is not enough to pay off the mortgage and the costs of foreclosure the mortgage holder may seek to collect the difference from you. This can ultimately result in seizure of your property, garnishment of your wages, or other collection efforts.

On the other hand, if the mortgage holder decides against trying to collect the deficiency, this may be considered a forgiveness of a debt. For tax purposes the IRS regards debt forgiveness as taxable income to you. Thus, if your mortgage holder forgives a $15,000 mortgage deficiency, you may get a tax bill from the IRS on $15,000 of income you never actually received. Filing bankruptcy on the home or the deficiency will eliminate your tax liability for the “debt forgiveness.”

If you file a bankruptcy action before the state court confirms the sheriff’s sale of your house, the foreclosure action will be halted. Thereafter, while you are in bankruptcy, the foreclosure cannot proceed without permission from the United States Bankruptcy Court.

Bankruptcy also halts repossession of your car, furnishings, appliances and other possessions. If the court grants permission, the lender will be allowed to take the property, but not to collect any deficiency in a Chapter 7 bankruptcy. Bankruptcy may allow you to cancel the mortgage debt entirely, or allow you to keep the home by catching up on back payments over time while you continue to make your regular monthly payments. If you show you can do this, the court will not allow the foreclosure to proceed. In a Chapter 7 proceeding, you can keep your house if you are current on your mortgage payments and/or make satisfactory arrangements with the mortgage company through a reaffirmation agreement.

You can also put other payments you have on a Chapter 13 plan, such as car payments, student loans, charge cards, along with your house payments and any delinquencies there are. This reduces them to a single monthly payment. It works somewhat like a debt consolidation loan, except that you don’t borrow money. Some of the debts may even be reduced, allowing you to greatly reduce your monthly payments. This may help you to “catch up” on the delinquent mortgage payments.

Can Bankruptcy Stop Repossessions Against My Car or Other Property?

When you get behind on payments of a debt secured by your car, furnishings, appliances and other possessions, a creditor can repossess these items. Even if you voluntarily surrender the property, this may be regarded as a repossession for all legal purposes. Upon repossession, the items will be sold and money from the sale credited to your account. If the sale proceeds aren’t enough to pay off the account and the costs of repossession you will be held liable for the difference. At that point the creditor can take whatever additional actions it deems appropriate, including filing a lawsuit against you.

However, when you file any type of bankruptcy, it stops all repossessions and stops your creditors from selling the items already in their possession.

A Chapter 13 bankruptcy can also stop the repossession and allow you to keep the item and restructure the debt. Through a Chapter 13, it may even be possible to have a repossessed item returned if the creditor has not already sold it. It is important to act quickly if you are attempting to stop a repossession or recover assets already taken.

For specific instances, please contact us and we’ll be happy to discuss your situation.