Whether you file for Chapter 7 or Chapter 13 Bankruptcy in Minnesota, there are options for making sure you can keep your house. One of the common misconceptions about bankruptcy is the one about losing your home. Whether you have no equity, or some equity in your house, the Federal Bankruptcy Code and Minnesota bankruptcy statutes have provisions that allow you to protect your house. The most important part is, keep making your mortgage payments. However, if you’ve fallen behind, don’t worry. We also have options for making up missed payments.
1. You Can't Lose Your Home
In the world of bankruptcy, the way we protect your assets is by utilizing the exemptions provided for under the law. According to bankruptcy law applicable to Minnesota, you are entitled to keep assets up to a certain dollar amount. Each type of asset has a different dollar amount associated with it. For example, under the Bankruptcy Code you’re entitled to have up to $23,675 of equity in property you use as a residence. This is known as the Homestead Exemption. Now, you might be thinking that’s not very much. Well, if you’re someone who has more than $23,675 of equity in your residence, you’re in luck. Under Minnesota bankruptcy exemptions, you’re entitled to have up to $390,000 of equity. Determining which set of bankruptcy exemptions to use depends on your specific situation. This is a bare bones explanation of the homestead exemptions, but it serves as a good starting point when discussing your options for keeping your house.
On the flip side of having equity in your house, you may be under water on your mortgage. If you owe more than what the house is worth, and only have one mortgage, that is not a problem. If you are set on keeping the house, the easiest way to thread the needle is by continuing to make your payments.
Behind on your mortgage payments? No problem. In some situations, our clients are faced with a situation where they haven’t been able to pay their mortgage for quite some time. Well, if you’re in a similar situation, you’re in luck. Through a chapter 13 bankruptcy we can work out a way in which you can keep the house if you pay back the missed payments over time. Again, the most important thing is you must continue making your normal monthly mortgage payment.
We often have clients who have two mortgages on their house. Occasionally, there are options to eliminate your liability on the second mortgage. There are certain requirements you must meet before we can attempt to get rid of a second mortgage, but we can discuss all of that in person. Simply put, if you owe more money on your first mortgage than the house is worth, and have a second mortgage, we can start the discussion of removing your liability on the second mortgage. This process is called lien stripping.
Just to echo what I have already said, the key to making sure you are able to keep your house is to continue making your mortgage payments, in full, each month moving forward. As long as you do that, we can certainly find a way for you to keep your house in most circumstances.
2. You Can't Lose Your Car
I’ll start off by saying, don’t worry about losing your car. Whether you file a chapter 7 or chapter 13 bankruptcy, we will do as much as the law permits to ensure you can keep your car. In some circumstances, we cannot protect your car. This happens when your vehicle is worth more than what the bankruptcy exemptions allow. Under the Federal Bankruptcy Code, you are entitled to keep one motor vehicle in which you have up to $3,375 in equity. Keep in mind, the $3,375 is the amount of equity you have in the vehicle, not the actual value of the vehicle. For example, if you have 20-year-old vehicle that is only worth $1,500, there won’t be any problem with keeping the vehicle. Also, if you have a car and you’re still making payments on it, that will not be an issue. However, if you still owe money on your car, you must continue making your monthly car payments if you want to keep it.
If you’re behind on your car payments, we will likely be able to help you with that also. In the event you’re behind on your payments, we can discuss your options for making up the missed payments through a chapter 13 bankruptcy. This option provides you the opportunity to keep your car and make up the payments you weren’t able to make before.
Sometimes our clients find they owe way more than what the car is actually worth. Well, if you fall into this category, there may be an option for you. If you purchased your car more than two years ago, we can use chapter 13 bankruptcy to restructure your debt on the car. In doing so, you might be able to reduce the amount you owe to the actual value of the car, plus interest. In reviewing your options for doing this, we will need to sit down with you and get all of the facts about your particular situation.
After filing for bankruptcy, the loan provider for your vehicle loan may ask you to sign what’s called a reaffirmation agreement. A reaffirmation agreement is a legal instrument that attaches your liability to the auto loan after filing bankruptcy. The reason this is done is because once we file your case, you will still have the vehicle, but you’re no longer liable for anything that happens to it. The bank doesn’t like you having their property without attaching your liability to the car. So, banks will sometimes ask you to sign the reaffirmation agreement.
Our office typically takes the stand that you should not sign a reaffirmation agreement after filing bankruptcy. We generally take this stance because filing for bankruptcy gives you your life back. Bankruptcy allows you to erase your liability on most debts. If you sign the reaffirmation agreement, you’re placing yourself back in debt right after getting your life back. Now, we understand vehicles are necessary for life in most circumstances, but that doesn’t necessarily mean you have to be driving that specific vehicle. It may be better to downgrade for a little while after filing for bankruptcy just to make sure you can take full advantage of the benefits of bankruptcy.
If you read the section titled “I Can’t Lose My House,” my closing statement would be the same. If you want to keep your car, the most important thing to do is keep making your monthly car payment. If you don’t have a car payment, we will do everything we can to help you keep your car. There are no guarantees without knowing the specific facts surrounding your individual situation. Please give us a call and we can discuss everything you’re going through. We will find a way to help you get your life back!