Can I keep my house after bankruptcy?

The short answer is yes, but you must be able to make the payments.  In general, a Chapter 7 bankruptcy is not going to order a debtor to move out of their home.  The bankruptcy is not going to remove a debtor’s name from title to their house.  The only effect the bankruptcy will have is to discharge the debtor’s personal liability to repay the loan.  The bank (or lender) retains the lien (a.k.a. the deed of trust) against the property.  If the debtor does not or cannot make the payments, the bank will foreclose.  If you have late mortgage payments at the time you file a Chapter 7 bankruptcy, you will still have to come current on the payments either by paying the past-due amounts (the “arrearages”) or by negotiating a loan modification with the lender.

In Chapter 13, if you want to keep your home and you have late mortgage payments, you propose a Chapter 13 repayment plan that pays off the late mortgage payments over 36 or 60 months.  During this time, you also make the monthly mortgage payment.  Depending on which district you file in (i.e., the Eastern District of California), will determine whether you pay your monthly mortgage payment directly or whether you pay it though your Chapter 13 plan.

Modesto bankruptcy attorney Brian Haddix can explain and advise you as to what option is best for you.

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Is Debt Settlement Legitimate?

Many clients come to me after they have attempted to work out payment plans with their creditors, usually by signing up with a so-called “debt settlement” company.  Debt settlement is an alternative to bankruptcy that could be useful – if the debt settlement companies actually did any work.  Usually, I hear that all the company did was take the debtor’s money without doing any work.  A government investigation into the debt-settlement industry has found that many debt settlement firms misled consumers by claiming to be affiliated with federal stimulus programs and exaggerating their ability to reduce consumers’ loans.

The general debt settlement scheme tends to be a sixty-month plan in which the debtor forgoes paying their debts and instead pays the debt settlement company a set monthly amount.  The first eight to ten months of payments usually go to the pay the debt settlement company’s fees.  After that, the payments go into a “trust” account for the client that builds up value until there is a sufficient amount available for the debt settlement company to begin negotiating lump-sum settlements of the debtor’s obligations with the debtor’s creditors.

The problems begin when the creditors stop receiving their payments and begin calling the debtor six times a day.  The debt settlement company might send out cease & desist letters pursuant to the Fair Debt Collections Practices Act.  This requires the creditor to stop all phone calls but does nothing about the debtor’s obligation to repay the debt.

But the biggest problem is timing.  The sixty-month payment plan set up by the debt settlement company is longer than the four year statute of limitations a creditor has to file a lawsuit for breach of contract.  That means that the creditor will likely sue the debtor for breach of contract prior to the debtor completing the debt settlement company’s payment plan.  If the creditor wins, which is very likely, the debtor is now responsible for the original principal, accrued interest, attorneys’ fees, and cost of suit.  Furthermore, the debtor’s credit is trashed by years of non-payment, judgments, and possible judgment liens.

If you have questions about debt or your ability to repay your current obligations, make an appointment for a free initial consultation with Modesto bankruptcy attorney Brian Haddix.  Mr. Haddix has extensive experience in dealing with debt and creditor claims.  He can advise you about your options and let you know what is best for you.

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