In my last blog I gave you the first five of ten ways that Chapter 13 allows you to keep your home. Here are the other five.
6. If you need to sell your home, Chapter 13 usually gives you much more time to do so than Chapter 7. More time means more market exposure, which usually means selling at a better price. That’s especially true if you’re forced to sell during a slow time of the year, or if you’re trying to do a short sale (where the house is worth less than what you owe). If you’re behind on your mortgage payments and in danger of a foreclosure, a Chapter 7 case will usually only buy you an extra three months, and sometimes even less if the creditor is aggressive. Then the only sure way to stop the foreclosure is by paying the entire arrearage of payments, interest, late charges, foreclosure fees and attorney fees in a lump sum, which could cost tens of thousands of dollars. In contrast, under Chapter 13 you can usually maintain the status quo and stay in your house by making your regular monthly mortgage payments and making meaningful progress towards paying the arrearage.
7. If you are behind on your child or spousal support obligations, Chapter 7 does nothing to stop collection efforts against you on those obligations, including against your home. Support obligations in many cases can turn into liens against the real estate you own, including your home, often giving your ex-spouse the ability to force the sale of your home to pay the support arrearage. On the other hand, Chapter 13 does stop most collection efforts of any support arrearage which existed when your bankruptcy was filed. Your Plan must show how you are going to pay that arrearage before your case is completed, and you must stay current on your Plan payments. But as long as you do, no support lien can be enforced against your home. At the end of your Chapter 13 case, you will have paid off the support arrearages, so the lien will be released, with no further risk to your home. (Important: Chapter 13 does NOT stop collection against any new support that you fail to pay after the filing date, so you must stay current on any such new obligations.)
8. In our last blog, I showed how Chapter 13 is usually the better option when dealing with an income tax lien against your home. There I used the situation in which the lien is on a tax debt that cannot be discharged—written off—in bankruptcy. But if the tax upon which the tax lien has been recorded can be discharged—because it is old enough and meets the other conditions for a dischargeable tax debt—dealing with the lien against your home in this situation is also better under Chapter 13. Depending on the amount of equity you have in your home and other possible factors, the IRS or other taxing authority may well not release the tax lien even after the underlying tax debt is discharged in a Chapter 7 case. In a Chapter 13 case, in contrast, there is an established mechanism for determining the value of that lien, and for paying it, so that at the completion of your case the tax debt is discharged and its lien is satisfied.
9. If you have fallen behind on property taxes, Chapter 13 is often the better way to deal with them. Usually, being current on property taxes is a condition of your mortgage, giving your mortgage lender an additional independent reason to foreclose if you aren’t. (This assumes you are not set up to pay the taxes through the “escrow” portion of your mortgage payment, but rather directly to the property tax authority.) By showing in your Chapter 13 Plan how you are curing your property tax arrearage—even if it takes years to do so—your mortgage lender is no longer able to say you are in breach of your mortgage and justify foreclosing on that basis.
10. Saving the most obvious for last, people often file Chapter 13 to prevent a Chapter 7 trustee from taking assets that are worth more than the applicable exemptions. And that applies to your home as much as anything. If you have more equity in your home than the homestead exemption allows, you risk losing your home in a Chapter 7 case. That risk is aggravated these days because the highly irregular housing market makes property appraisals difficult to accurately predict. Chapter 7 trustees have a great deal of discretion, and predicting how aggressive yours will be is made even more difficult because there is no guaranteed way of knowing which trustee will be assigned to your case. In contrast, usually all Chapter 13s in a region are assigned to the single local “standing trustee.” So we are familiar with his or her inclinations. Even more important, Chapter 13 provides a much more predictable procedure for determining the value of a home, and a mechanism to protect the value of the home in excess of the homestead, if any.
In a nutshell, Chapter 13 provides quite a number of tools to help you keep your home. Simply said, it gives you more control over the situation. It is definitely not the automatic answer just because you have a home in distress, because Chapter 13 certainly has its limitations. But it is often a powerful option that you should discuss carefully with your attorney.
