Will I Lose My Home If I File Chapter 13 Bankruptcy?

by Neal Frankle, CFP ®

Will I lose my home if I file chapter 13 Bankruptcy? A reader, “V,” asked me this question recently. Here’s a copy of her e-mail:

I might have to file “BK.” I have four credit cards in default. I am on disability and have no earned income but at least my house is paid for. Will I lose my house if I decide to file “BK”?

Disclaimer: I’m not an attorney and V really should consult with an attorney before making any decision.

With that out of the way, here’s my take:

First, no – V probably won’t lose her home if she files for chapter 13 Bankruptcy. The difference between Chapter 7 and Chapter 13 is that chapter 13 is a “work out” plan. It is a process by which creditors and V will work out a plan for her to pay back what she owes.

 

lose my home

 

They may agree on special terms and longer payback periods. They may also agree on some debt reduction, but chapter 13 would likely NOT cost V her home.

Having said that, I don’t know why V would consider chapter 13 in the first place.

Credit card debt is unsecured. That means the companies can’t foreclose on her home. They could of course get a lien on her home, which would make it hard for her to sell or refinance…but that’s it.

They might get a judgment against V by filing a lawsuit and then possibly foreclose. But this course of action is extremely rare and risky for them.

Another option they have is to try to garnish V’s wages, but since she’s on disability I don’t think many judges would grant them the order. A credit card company’s ability to get judgments and to garnish your wages is controlled by state law, so V should look into what her state’s provisions are.

If V thinks the credit card companies are going to sue her, she should consult an attorney to talk about the exemption laws and how to protect herself.

Bottom line: V is probably facing some pretty nasty phone calls and letters but doesn’t need to worry too much about losing her home. She probably doesn’t need to worry about filing chapter 13 either, but she should make every effort possible to work out the problem with her credit card companies. At that point, she can get to work on restarting her financial life using some credit builders.

What would you do in V’s place?

 

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{ 5 comments… read them below or add one }

Tina August 6, 2010 at 1:04 PM

I own my home (with ex-husband) the land taxes have not been paid, I was in rehab for the last year and a half, I have no credit cards, but I have acquired around 11,000 in medical bills. currently, I am on food stamps, staying with my daughter, will start a job in a few days that does not even come close to paying these bills. I am worried about phone harrassment, lawyers, and wage garnishments. My question is “Should I file Ch,13? would this have an impact on my home in any way. I owe over 900.00 in land taxes

Reply

Weston July 1, 2010 at 7:23 AM

I see no benefit of a 13.

I see very real benefits for a 7 depending on the amount of debt and the applicability of exemptions.

If she doesn’t pay and doesn’t file she’s in a situation where a disabled person spends much of the next few years being sued, appearing at hearings, sitting for depositions, answering discovery etc. As opposed to a Chapter 7 case which usually involves only one court appearance at a meeting of creditors.

There is also the peace of mind of not having a lien on her property and being able to do with it as she sees fit without having to worry that she (or her heirs) will have to deal with satisfying a lien.

Again, this all depends on amount of debt and what assets she has and whether those assets are exempt or non exempt.

Reply

Neal July 1, 2010 at 7:26 AM

Thanks Weston……great input. Another confirmation that “V” should be talking to a competent attorney.

Reply

Neal July 1, 2010 at 6:04 AM

What would be the benefit of 13 or 7 for her? Why does she need to file in your opinion?

Reply

Weston July 1, 2010 at 4:34 AM

If I was her I would go to bankruptcy attorney, determine whether her home and disability payments are exempt and if so, file a Chapter 7. Based upon the facts as given I’m not sure why she would consider a 13 over a 7.

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