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New Mexico Lawyers Serving New Mexico's Legal Needs Since 1997

Bankruptcy considerations when you own a home

The past decade hasn't been kind to many people, and the combination of job losses and a tightening economy have caused many to take on more debt.

One of the biggest misconceptions about filing bankruptcy is that debtors will lose everything that they own. If you own a home, this is often a primary concern. What will happen to your house if you file for bankruptcy? It depends on your specific situation and the type of bankruptcy you file.

Here is some information about how you may be able to keep your house when filing for bankruptcy.

Chapter 7 bankruptcy

You may qualify for a Chapter 7 bankruptcy if you meet certain guidelines. This type of bankruptcy is considered to be a "liquidation" bankruptcy because all of your eligible debt is essentially erased.

If you own a home that you want to keep and are filing for Chapter 7 bankruptcy, you first need to stay current or make arrangements to catch up on your mortgage payments. If you have significant equity in your home, there are cases where the bankruptcy trustee will sell the home to pay off your debtors. However, you have a homestead exemption to protect a certain level of equity, which is sufficient for most homeowners. It will also be up to the mortgage lender to decide whether or not they will continue to work with you going forward on things like refinancing your mortgage.

Chapter 13 bankruptcy

In a Chapter 13 bankruptcy, the trustee doesn't liquidate assets. Instead, you make payments over time to a trustee, who distributes the payments to your creditors. Upon completion of your plan, any unpaid debts are discharged. If you don't have regular, or steady, income you may not be eligible for Chapter 13. The amount of payments is based on your income, and this type of bankruptcy has several advantages for homeowners.

Chapter 13 bankruptcy is the best choice if you are behind in mortgage payments and want to stop foreclosure. This proceeding will protect you from a pending foreclosure through the court arranged repayment plan. As long as you continue to make your payments for the three to five years that your Chapter 13 bankruptcy is in place, you'll be able to keep your home and cure any arrears through your plan over time.

Additionally, if there is a second mortgage or other junior liens that are under water, those liens can be stripped through a Chapter 13 bankruptcy.

Want to learn more about bankruptcy and see if it's right for you? Working with a bankruptcy attorney will help you understand all of your options.

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