Can You Prevent the Loss of Your Home or Car by Filing for Bankruptcy Protection?

If you have fallen behind on your mortgage or car payments because of the loss of your job, medical expenses, a divorce, or for any other reason, you may live in daily fear that you will lose your home or your vehicle. You may have considered filing for bankruptcy, but heard conflicting stories about whether or not you can protect real property or a car through a bankruptcy petition. Here’s what you need to know.

The Automatic Stay Provided by the Bankruptcy Laws

When you file for bankruptcy, an automatic stay immediately goes into effect, suspending all legal action related to any debt that is part of the bankruptcy. This means that your creditors cannot call or write you in an effort to collect on a debt. It also means that they cannot initiate or continue any legal action (outside of the bankruptcy proceeding) and that all legal efforts to collect from you, or to foreclose on or repossess your property must immediately stop. In order to take advantage of the automatic stay, however, you must file for bankruptcy protection before the foreclosure sale, or before your vehicle has been repossessed. It may be possible, with respect to a car, to get the vehicle back if you file for bankruptcy after it has been repossessed, but before it has been sold at an auction.

Discharge vs. Reorganization of Your Debts

Some creditors, such as credit card creditors and medical creditors, are unsecured creditors. This means that there is no specific piece of property that their debts are attached to. On the other hand, some creditors are secured creditors. The most common secured creditors are automobile lenders, who hold a lien on the car, and mortgage companies, who hold a mortgage on a home. Both Chapter 7 and Chapter 13 bankruptcy let you discharge most of your debts. However, if you want to keep the property which is subject to a secured creditor’s lien or mortgage, you need to keep paying that secured creditor.

A Chapter 13 bankruptcy provides a unique opportunity to have your unsecured debts discharged and to restructure your secured debts. While it is typically not feasible to change the terms of mortgage loans in a Chapter 13 bankruptcy without the cooperation of the lender, it is often times possible to change the terms of car loans. For example, in a Chapter 13 bankruptcy many individuals are able to reduce the total amount they need to pay to their auto lender by lowering the effective principal balance owed and interest rate to be paid to the auto lender. In addition, these payments can be stretched out over 5 years, so if you have a car payment that is too high, but only two years left on payments, then you can lower your monthly payment so that it is instead paid out over 5 years.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-759-6022 (toll free at 866-662-3191).