If you are struggling to pay your bills in Michigan each month and can barely afford to keep the roof over your head, you may be considering filing for bankruptcy. Although this offers you the opportunity to put an end to the stress and frustrations you are experiencing from not keeping current on your mortgage, it is not a one-size fix for everyone. Both Chapter 7 and 13 bankruptcies make it possible for you to keep your home. Before you file for bankruptcy, you should learn more about them.
How Chapter 7 works
Chapter 7 is ideal if you do not have any disposable income to satisfy your debts. Chapter 7 bankruptcy does not erase your debts because you are unable to pay. Usually it requires the seizure and selling of assets to satisfy a portion or all your debts. However, if your home’s market value minus the amount you still owe on the mortgage is lower than the exemption amount allowed by the state, you may be able to keep it after filing for Chapter 7.
For example, your home has a market value of $67,600, and you still owe $47,315 on the mortgage. The difference between the two is $20,285, and the exemption is $75,000. Since the difference is lower than the exemption, you may qualify to keep your home. However, if your home has a market value of $125,600 and you still owe $37,276, then your property is subject to seizure because the difference is $88,324 which is higher than the exemption.
If your property qualifies for exemption, you are no longer personally liable for the mortgage. Your lender cannot sue you for the balance due. But if you fail to continue paying your mortgage, you could end up facing foreclosure, because your lender still holds the lien to your property.
How Chapter 13 works
Chapter 13 bankruptcy works a bit differently. There are stricter requirements and exemptions you need to meet to benefit from the program. If you qualify for Chapter 13, you have the option of negotiating a payment plan that allows you to pay off the amount in arrears to bring your mortgage current. You must make on-time payments over a period of three to five years to avoid losing your home to bankruptcy.
If other debts are holding you back from staying current on your mortgage, then you may benefit from bankruptcy. But if you still cannot afford your mortgage payments after filing for bankruptcy, you may need to consider other options, because it is still possible for you to lose your home.
You should carefully consider your situation to determine which bankruptcy option is right for you. If you are struggling with your decision and in need of guidance, speak to an attorney about your situation.