The two most common types of personal bankruptcy are Chapter 13 bankruptcy and Chapter 7 bankruptcy. In both cases, the bankruptcy court issues an automatic stay that halts any creditor collection actions against you, at least temporarily. The type of bankruptcy filing that's appropriate for your financial situation depends on many factors, of course. For example, if you have a great deal of equity built up in your home but lots of bills and decent income a Chapter 13 bankruptcy filing might work. In other cases, though, your attorney may recommend you file for Chapter 7 bankruptcy protection.
When you file for Chapter 7 bankruptcy you're asking the federal court to eliminate, or "discharge," your stated debts. Often, a Chapter 7 filing is appropriate for people with few assets, such as a home with accumulated equity, but with much debt. By law, the bankruptcy court trustee assigned to your case will examine your debts and any qualifying assets you may have. She may then select certain of those assets and sell off or "liquidate" them to pay your listed creditors.
Debts secured by an underlying asset receive first priority when it comes to paying them from your liquidation proceeds. Credit card and similar debts rank low on bankruptcy trustees' priorities, especially if you have few assets to liquidate. However, your trustee will allow your creditors an opportunity to meet with him and with you, called a creditor's meeting. There, they can make a case for why the trustee should pay them more or even exclude that debt from your bankruptcy filing.
Keeping Your Home
If your home is worth more than you owe the bankruptcy trustee will usually sell it off to pay your creditors, starting with your mortgage company. If your home is worth less than you owe, however, you can include it in your Chapter 7 bankruptcy filing. If the trustee agrees, the court will then discharge your mortgage debt, allowing you to walk away from it.
If you do owe more than your home is worth, it's even possible to keep it and discharge the mortgage as long as you keep making your mortgage payments. If you stop making payments to your mortgage holder expect a foreclosure and eviction soon thereafter.
Bankruptcy is a very intricate process, especially when you have a mortgaged home. Always consult with an experienced bankruptcy attorney first. And if you think your financial situation merits a possible bankruptcy filing don't hesitate to contact us immediately.