The good news is, most property can be protected in bankruptcy proceedings. North Carolina, like most states, allows you to protect most real and personal property by using “exemptions.”
When we have a consultation with a prospective client we do everything we can to explore every option that the client may have. Then, the client decides which direction they would like to head. One of the frequent questions we get is what happens if instead of filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy they just give up the house and walk away. The answer to that question really depends upon whether or not you have any equity in your house. Equity is the difference between the value of the house and how much you owe.
Substantial Equity: If you have substantial equity in your house then you may be okay just walking away. Typically what happens is the bank will foreclose on the home after you walk away and sell. According to a MSN Money article, John T. Reed, the Editor of Real Estate Investor’s Monthly, a foreclosed home will sale about 5% below the market average but may be up to 30% or 40% below market value.
If the mortgage company is able to recover the full amount that you owe on the property then you are not likely to owe any more money for the foreclosed home. However, you will still have a foreclosure that appears on your credit report.
Little to No Equity: If you have little to no equity in your home and the bank is unable to recover the amount you owe then you will be responsible for the unpaid balance which is called the deficiency balance. In other words, if your foreclosed house sold for $100,000 but you owe $150,000 on the house, then you would still owe the bank $50,000. It is unlikely that you will have $50,000 to pay out of pocket so the bank has the ability to file a lawsuit against you and obtain a judgment. That judgment could eventually lead to a lien on your different types of property. Liens are bad news – you don’t want one!
Typically speaking, foreclosed properties will not recover the full amount owed to the bank for the mortgage. Therefore, they will look to you to pay the deficiency balance. A bankruptcy has the ability to potentially wipe out this entire balance.
The bottom line: if you still owe money for the mortgage even after the foreclosure sale of your home then you will be liable for those costs. Bankruptcy can usually wipe out that left over balance. If you do nothing they will file suit against you and have a judgment that may attach to your property. Ideally, you don’t want a foreclose to appear on your credit. Bankruptcy gives you the ability to keep the foreclosure off your credit and wipe out the deficiency balance.
It is very important that you make your Chapter 13 bankruptcy payments every month as required by your Chapter 13 plan. If you fail to make your monthly payment to the Trustee, the Trustee will ask the Court to dismiss your case. He or she does this by filing a “Motion to Dismiss.” The Trustee will schedule a hearing to discuss the reason(s) you fell behind on your payments. If you receive a Motion to Dismiss you will need to contact your attorney immediately to discuss your options. If you do not want your case dismissed, the Trustee may, under certain circumstances, be able to adjust your plan payment or term to pay the amount you are behind.
One of the biggest fears people have in filing bankruptcy is being able to protect their property. Here is the good news – we can almost always protect all of your property. You are entitled to keep a generous amount of your belongings when filing bankruptcy. North Carolina law now provides higher personal exemptions–items that are protected from seizure by your creditors.
A Consent Order is an agreement between you (usually written up by your bankruptcy lawyer) and the mortgage company or homeowner’s association to allow you to get caught on any Chapter 13 bankruptcy payments so you can keep your house. There are a few situations to be aware of when it comes to getting together a consent order.
Charlotte Office Clients:
If you filed a Chapter 13 bankruptcy before July 1, 2009, your Chapter 13 payment does not include your monthly mortgage payment(s) on your house. You must make your mortgage payments directly to your mortgage company. If you have homeowner association dues (HOA), you must also make your payments directly to your homeowners association.
If you filed a Chapter 13 bankruptcy on or after July 1, 2009, your mortgage payment is included in your Chapter 13 payment to the Trustee.
Greensboro Office Clients:
Your Chapter 13 payment may or may not include your mortgage payment. If you were behind on your mortgage payments when you filed the bankruptcy, then your Chapter 13 payment will include your mortgage payment. If you were not behind on your mortgage payments when you filed the bankruptcy, then you had the option of paying the mortgage payment yourself or including the mortgage payment in the bankruptcy. If you are unsure, check with your attorney. If you have homeowner association dues (HOA), you must make your payments directly to your homeowners association.
Charlotte and Greensboro Office Clients:
If you fall behind on your mortgage or HOA payments, the mortgage company or HOA will file a Motion for Relief from Automatic Stay asking the court for permission to foreclose on your property. If your mortgage company or HOA files a Motion for Relief from Stay it is very important you contact your attorney immediately. In many cases your attorney can work out a Consent Order with the mortgage company or HOA’s attorney that would allow you to catch up on the payments you are behind. Your attorney cannot work out a Consent Order with the mortgage company or HOA’s attorney without your assistance and agreement on the terms. The Consent Order may give you one last chance at keeping your property. Failure to comply with the terms in the Consent Order will result in the mortgage company/ HOA getting relief from the automatic stay and being able to proceed with foreclosure.
Contact us today for more information on what happens if you get behind on your mortgage payments while in bankruptcy.
Charlotte: (704) 563-1224
Greensboro: (336) 856-1234
Winston-Salem: (336) 245-4294
