One of the most common concerns that potential clients have when considering whether or not to file a Chapter 7 bankruptcy is will they be able to keep their house?
When you file for Chapter 7 bankruptcy, you can get rid of the amount of money you owe to his unsecured creditors. This includes credit card debts, personal loans and medical bills.
You can also get rid of his secured debt. A secured debt is one where a debtor gives a creditor an interest in the debtor’s property in exchange for the creditor lending money. An example is a mortgage.
You’ve got the option of keeping the house if you’re current on the mortgage.
However, you can also give up the house if you’re behind on the mortgage. This is known as surrendering the property.
Once a house is surrendered and the bankruptcy is discharged a creditor can sell the house to pay off the debt owed, but you’re no longer personally responsible for any shortfall.
As a result, even if the creditor cannot get the full amount owed for the mortgage, you’re not responsible for the deficiency. You pay only for so long as you want to keep the house – and if you change you mind, you can hand back the keys and walk away from the mortgage without a second thought. For many, it’s like a long-term insurance policy against an uncertain financial future.
The decision to keep a house in a Chapter 7 bankruptcy is one that should only be made after consultation with an experienced bankruptcy attorney since it may be necessary to sign an agreement to reaffirm the home loan to keep the house. These types of agreements, known as reaffirmation agreements, result in the debtor agreeing to continue to be personally liable for the debt after the bankruptcy is completed.
Since a Chapter 7 bankruptcy can only be filed once every 8 years, the decision to reaffirm a debt can cause new financial problems if the debtor can no longer pay the mortgage once his Chapter 7 bankruptcy is over.
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Last modified: February 24, 2013