Though individuals desire debt relief, they may have concerns about losing their homes in bankruptcy. Filing bankruptcy in East Orange New Jersey doesn’t mean a person will lose his or her primary home. However, he or she may have to sell a second home depending on the circumstances and type of bankruptcy.
Overview of mortgages in bankruptcy
With Chapter 7, the debtor commonly must sell nonexempt assets through a court-appointed trustee to pay secured creditors. Mortgages are considered a secured debt by the courts since the home is the collateral, giving the lender the right to place a lien on it.
While the debtor is resolved of personal liability, the lenders can foreclose the home under mortgage default. The debtor’s primary residence is commonly an exempt asset as long as he or she doesn’t default on the payments.
Chapter 13 allows the debtor to repay debts over three to five years under a court-approved plan. If he or she maintains payments and completes the payment plan, he or she commonly doesn’t have to sell the property. The individual pays the delinquent mortgage payments through the monthly payment he or she makes toward the trustee.
Saving second homes in bankruptcy
Chapter 7 bankruptcy, in most states, will not remove junior liens, which means anything outside second mortgages. A few states under the 11th Circuit have recently allowed it, but lien stripping is commonly only available under Chapter 13 and Chapter 11 bankruptcies. Lien stripping allows debtors to discharge second mortgages when they are upside down, and the debt becomes unsecured.
If the debtor doesn’t qualify for lien stripping, he or she may use state or federal exemptions to save property. New Jersey allows homeowners to exempt $12,585 and a wild card exemption of $1,000 for any belongings and property.
Debtors must follow all the requirements of bankruptcy to get discharged to avoid case dismissal. Since bankruptcy impacts credit, they should study all their options.