If you have lots of credit card debt (which is unsecured debt), own your own home, but have limited income, bankruptcy might not always be the best choice for you. If you have some equity in your home, you might lose it in the bankruptcy. Here are some bankruptcy facts and if or when you should turn to other non bankruptcy options.
Filing for Chapter 7 Bankruptcy
In most cases, your credit card debt will be discharged in a Chapter 7 bankruptcy. However, the bankruptcy trustee has the power to sell your home and use the proceeds to pay your creditors. Many states allow you to protect some equity in your home from the bankruptcy trustee (this is called an exemption). However, if an exemption doesn’t cover all of your equity, you may lose your home in the bankruptcy. Call Firebaugh and Andrews at 734-722-2999 for your free consultation.
If, on the other hand, you have little or no equity in your home (for instance, your house is upside down), then Chapter 7 bankruptcy more then likely will be your best option, as it can discharge the unsecured debt. And if you live within reside in Alabama, Florida, and Georgia, you might be able to get rid of second mortgages or liens in some circumstances.
Filing for Chapter 13 Bankruptcy
Chapter 13 bankruptcy is almost always the best option for debtors who have equity in their homes. In Chapter 13, you keep your property and pay back creditors, in full or in part, through a repayment plan that lasts three to five years.
You must pay your creditors enough to match the value of the home equity over the life of your plan, which will be three to five years. If you have a limited income, however, you may not be able to afford an acceptable payment plan in a Chapter 13.
Non Bankruptcy Options
If Chapter 13 or Chapter 7 bankruptcy are not a viable options for you, you should consider non-bankruptcy options, such as:
- Negotiating reduced payment plans with your creditors.
- Refinancing your home and using the proceeds to negotiate reduced lump sum payments to the creditors, provided that your income can handle the new mortgage payments. You should think carefully about this option, however, because you are now putting yourself at risk of losing the home if you fall behind on the new mortgage payments.
- If you have little or no equity in your home and do not own assets of significant value, you can do nothing. If one of your creditors obtains a judgment against you, it won’t be able to collect on that judgment because your social security income is exempt from garnishment and you have no assets for it to take.
Call Firebaugh & Andrews today for a free evaluation 734-722-2999