Will Bankruptcy cause me to lose my Home?
In the VAST majority of case the answer to this is NO. Most of the time people get to keep their home.
In order to understand why this is true, one must first understand the concept of equity. When you take a mortgage or mortgages on your home, there is a certain amount of your home that you actually don't own. Equity is the difference between the fair market value (the price for which a house would sell) and the amount owed on the mortgage(s), essentially it's the portion of the house you 'own'.
This is best understood by example. If your house will sell for $200,000, but you owe $210,000 in mortgages, you have no equity in your home because you owe $10k more than the home is worth. By contrast, if you have a home that will sell for $200,000 but you owe $150,000 on your home, you have $50,000 of equity in your home (my example is approximate because selling a house has expenses involve). In this case, the value of the property you own isn't actually $200,000, but rather $50,000 – the bank that issued your mortgage owns the rest.
In order for someone to lose their home in bankruptcy, one has to have more than $21,625 in equity (if single) or $43,250 (if married) (again, in actual practice, adjustments are made for the cost of sale as well, effectively increasing the forgoing numbers). The best way to determine if you have equity in your home is by calling a real estate broker and getting a comparative market analysis or a uniform appraisal of the property from a licensed appraiser (appraisals cost money). Don't assume you know the value of your home.
For one to lose their home, the realistic selling price of the property would have to be sufficiently high to:
Perhaps the only silver lining to the current economic crisis is that housing prices are so low, that most people don't lose their homes in bankruptcy.
Can Bankruptcy save my Home?
Possibly. This really depends a number of factors including whether you are current on your mortgage or if you are behind, on how far behind you are. If the Bank is foreclosing, a Chapter 7 will not stop a foreclosure and you would be better off considering a Chapter 13 (another form of Bankruptcy for people who are either too rich or own too much property to qualify for or need a Chapter 7).
If you are simply falling behind on your mortgage, a Chapter 7 may help, as it will eliminate some other bills which in turn may allow you to divert sufficient funds to your mortgage. Therefore while the aid is not direct, it can indirectly help you save your home.
Deficiency Suits and Bankruptcy
On a side note: if you have been foreclosed upon or are about to be foreclosed upon, and you don't want to do a Chapter 13, a Chapter 7 still may be of aid. If you have negative equity in your home, meaning you owe more than the house is worth, the creditor might eventually sue you for the balance (although in NJ these "deficiency" lawsuits are relatively rare).
In the event a deficiency is initiated, your home is foreclosed AND the mortgage company sues you for the remainder of the money owing on the mortgage balance. While this seems, and is, grossly unfair, it's does occasionally happen with regard to houses; with regard to motor vehicles, after a car repossession you are almost certain to be sued for a deficiency since repossessed automobiles are sold at very low prices, about ½ their fair market value. In such a case a Chapter 7 can help, as the obligation upon which you are being sued is now an unsecured personal liability that can be discharged (eliminated) in a Chapter 7 Bankruptcy.
Kyle L. Mastro, Esq. - regularly practices in the field of Bankruptcy
Kyle L. Mastro - Attorney at Law is proud to be qualified as a Debt Relief Agency under Chapter 11 of the United States Code.
Kyle L. Mastro, Esq provides free consultations. Consultations are confidential and Mr. Mastro is always happy to help you determine whether filing for Bankruptcy can help you to control your finances and get a fresh start.