Home Foreclosure

Filing Chapter 7 bankruptcy won't prevent a foreclosure action that has already been filed or is imminent but it will put it temporarily on hold until the mortgage lender is able to convince the bankruptcy judge to let the foreclosure proceed. So, if you are behind on your payments, you'll have to get current and continue to make your payments before and after filing for Chapter 7 protection. However, since bankruptcy provides relief from your other debts such as credit cards, medical bills and other unsecured obligations, bankruptcy could very well enable you to catch up on your mortgage payments and keep your house. 

It's important to "crunch" the numbers and make sure it makes sense to fight to keep your home and the mortgage debt associated with it. The decision will probably turn on whether or not you have equity in the property. In today's real estate market, many people who refinanced their homes at the peak of the real estate boom find that their property is no longer worth as much as the combined mortgages that encumber it (very frequently a first mortgage and a second mortgage that often takes the form of a "home equity" loan). This situation is commonly referred to as being "upside down" on your mortgage or your home. Depending on how "upside down" you are and what your expectations are that your property value will rebound (as well as your ability to continue paying the mortgages while the market recovers) you may or may not decide that the house is worth keeping. If you decide to walk away from the property, Chapter 7 bankruptcy will protect you from personal liability for any deficit the lender realizes when it ultimately forecloses on the property and later sells it for less than the outstanding mortgage debt.

However, if you are far behind on your payments but you have equity in the property that you want to fight to keep, filing Chapter 13 bankruptcy may be the best choice for you. Under a Chapter 13 debt repayment plan, you will have up to five years to bring your mortgage payments up to date provided you are also able to pay the current monthly payments, taxes and insurance as they come due. In Florida, equity in your "homestead" is "exempt" for purposes of bankruptcy meaning in most cases absent unusual circumstances the bankruptcy trustee will not be able to take and sell your home to produce cash to pay to your unsecured creditors such as credit card companies. 

How much homestead equity is exempt in Florida? That will depend on how long you have lived in Florida. If you bought your home in Florida more than 40 months ago you can use the Florida unlimited homestead exemption. If you acquired your home within the 40 months prior to filing the bankruptcy and did not purchase it with the proceeds from selling another home in Florida, your homestead exemption will be capped at $136,875. Note however, that no matter how long you have lived in Florida the court may still cap your homestead exeption if you have been convicted of certain crimes or certain intentional, willful or reckless acts that caused death or serious personal injury. But, the court can still lift the cap if it finds that the homestead exemption is reasonably necessary for the support of you, your spouse and dependents. If you bought your home in Florida within the last two years, then you must use the homestead exemption of the state where you were living for the better part of the 180-day period that ended two years before your filing date and you are still subject to the $136,875 limit.

Remember, if you intend to keep your home it is important to make your monthly payments by money order or bank check for several months after you file and send payments by certified or registered mail with return receipt requested. If your house payments are automatically deducted from your checking account, filing bankruptcy may stop those payments. So, watch your checking account closely or better yet, make arrangement to sent the payment to the lender yourself before the due date. It is really importatnt that you not get behind on house payments after filing bankruptcy. If you do, your lender may have the right to foreclose on your house.