If you are facing foreclosure, it’s advised that you work with a bankruptcy attorney that can explain what options you have to keep your home, including filing for a Chapter 13 bankruptcy. During the process of foreclosure, a mortgage lender will attempt to recover the balance of a loan from a homeowner that is unable to pay his or her mortgage. The foreclosure process will be determined by the state in which you live, but below we will outline the basic process in Arizona.
Chapter 13 When Facing Foreclosure
There are steps available to homeowners who are facing home foreclosure. If you are struggling to make payments on your home because of loss of job or other unforeseen circumstance, remember that mortgage lenders are often willing to work with you. A lender would rather a homeowner stay in the home than try to recoup the money on the loan via a foreclosure sale. One option you can pursue is a loan modification.
A loan modification permanently restructures a mortgage so that a homeowner is able to make affordable payments. With a loan modification, a lender modifies one or more of the terms of the home loan. Some options include the following:
- reducing the interest rate
- forgiving a portion of the principal balance
- converting the mortgage from a variable interest rate to a fixed interest rate
- extending the length of the term of the loan
Qualifying for a Loan Modification
Here are some qualifications that a lender will look for:
Homeowner is experiencing hardship. A “hardship” is something that has happened unexpectedly that has made it difficult for a homeowner to afford the mortgage payment. These hardships include: job loss, sudden illness, or death in you immediate family. Proving a hardship has occurred usually requires a homeowner to write a letter to your lender that outlines the hardship circumstances. A lender will also typically ask for “proof” of how a hardship has impacted a homeowner’s financial standing. Proof can be in the form of pay stubs and bank statements. A lender will review the “proof” and financial information of a homeowner before deciding if they qualify for modification, and also to determine what type of modification to grant.
Negative equity. Having negative equity means a homeowner owes more on the house than it is worth.
Sub-prime loan. A sub-prime loan means is a bad loan, and that it has been deemed “bad” for any number of reasons, including the following: it might have been illegally signed (robo-signing was a practice during the housing crisis) or that a homeowner was approved for an amount that, based on the current financial standing, you never would have been able to repay. Many of these sub-prime loans were awarded during the housing crisis in an effort to sell, sell, sell. These loans have a high rate of default and thus a high rate of borrowers who are now seeking foreclosures because they are unable to afford the loans they received.
Facing foreclosure. If a homeowner is facing foreclosure he or she can request a loan modification that will keep the house from being foreclosed on. There are options available when facing a foreclosure, and it’s important to understand what they are.
Chapter 13 Bankruptcy
Filing a Chapter 13 Bankruptcy can also stop a foreclosure. In fact, stopping mortgage foreclosures is the driving force behind many Chapter 13 bankruptcies that are filed in Las Vegas, Nevada. Filing a Chapter 13 Bankruptcy can stop a mortgage foreclosure proceeding in its tracks. However, the Chapter 13 bankruptcy must be filed before the mortgage company sells your home. The bankruptcy filing gives homeowners the time they need to cure delinquent mortgage payments.
A Chapter 13 bankruptcy plan provides for the repayment of the mortgage arrears and other secured debts from future income rather than from the current sale of your assets. Under Chapter 13 bankruptcy, the payments you make are fixed so that you can meet all your necessary living expenses first and then pay any surplus income to creditors. One of our experienced Las Vegas, Nevada Bankruptcy Attorneys can help you structure a repayment plan that works for you and your creditors.
As a Nevada homeowner, you must make all mortgage payments that come due during the Chapter 13 bankruptcy repayment plan. Your mortgage company cannot contact you in regard to your pre-filing mortgage arrears while you are in the Chapter 13 bankruptcy. However, if you fail to make your post-filing mortgage payments, the mortgage company can ask the bankruptcy court to lift the protection of the bankruptcy code and resume the foreclosure proceedings against you. The possibility of refinancing your mortgage after you have gotten back on track with your Chapter 13 plan is realistic for many consumers. Once the mortgage company sees consistent and current payments, they are happy to work with people after their Chapter 13 Bankruptcy filing.
Deciding on Bankruptcy
When you’re facing a large amount of debt, it can feel insurmountable. Should you file for bankruptcy? How does bankruptcy work? As always, it’s advised that you work with a phoenix chapter 7 bankruptcy lawyer or phoenix chapter 11 bankruptcy lawyer to help you determine if bankruptcy is the next step for you, or if there are other options for you. Below we review what forms of bankruptcy might work for you, what a means test is, and questions you should consider if you are already considering bankruptcy.
Quick Overview of Bankruptcy
Depending on your situation, if you’re considering filing for bankruptcy, you’ll need to determine which form of bankruptcy – either Chapter 7 or Chapter 13 – you should file.
Chapter 7 (also known an straight bankruptcy) is the most common form of bankruptcy and is available to consumers and businesses.
Under Chapter 7, assets are sold off so that the proceeds can go to paying debt. All proceeds from the sales of those assets are handed over to a trustee, who then pays down any and all creditors. After all creditors have been paid off they are no longer able to collect funds directly from you and your debts are cancelled, meaning you are no longer responsible for them.
You are not able to discharge the following debts under Chapter 7:
- Alimony and child support
- Drunk driving judgments, criminal fines, restitution
- Debts incurred as the result of fraud or intentional wrongdoing
- Back taxes under 3 years old
- Student loans
- Recent purchases made for substantial amounts
- Contracts involving titles or liens such as land or automobiles
You are not able to discharge the following debts under Chapter 13:
- Alimony and child support
- Drunk driving judgments
- Criminal fines
- Student loans
Reasons to File Chapter 7
Chapter 7 bankruptcy should be chosen if the following apply:
- You have no hope and have no future hope of being able to repay any debts
- Your debts do not have co-signers on them
- You are going to be sued by creditors
- You don’t qualify for Chapter 13
Reasons to File Chapter 13
Chapter 13 bankruptcy should be chosen if the following apply:
- You have already filed Chapter 7 in the past six years
- Your debts have cosigners
- You will be able to pay your debts within three to five years
- Your income disqualifies you from filing for Chapter 7
- You need relief from collection proceedings and you want to pay your creditors back but just need some breathing room to get your finances under control
- You want to be able to file a Chapter 7 bankruptcy some time in the future
- You are behind on your mortgage
- You owe back taxes
- You have assets that could be liquidated in Chapter 7
- You’re a farmer with debt not related to your farming operations and do not qualify for Chapter 12
Bankruptcy Exemptions in Arizona
Just like with any legal actions or processes, there are rules that vary from state to state. When it comes to declaring bankruptcy in the state of Arizona, there are some exemptions that you will come across.
When a person files for Chapter 7 bankruptcy or Chapter 13 bankruptcy in Arizona they are able to protect some or all of their property under Arizona’s bankruptcy exemptions. Additionally, Arizona has “opted out” of federal bankruptcy exemptions so a debtor is only allowed to exempt property under the state’s laws.
Here are some of the exemptions a debtor has in Arizona:
Married couples filing for joint bankruptcy in Arizona are allowed to “double” the exemption amount for certain items including motor vehicles and household goods.
Alimony and child support, up to the amount needed for support.
Debtors are allowed to exempt up to $150,000 (per debtor or married couple) of their home or other property under the homestead exemption.
Life insurance benefits up to $20,000. They must be payable or received by a surviving spouse or child.
Claims for the destruction of, or damage to, any exempted property.
Up to $6,000 in one or more motor vehicles. For debtor’s that are elderly or disabled, or an elderly or disabled spouse that is a dependent of a debtor, the exemption amount is up to $12,000.
All benefits from various employee pension systems are exempt.
Just as with federal rules, tax exempt retirement accounts (401ks and IRAs) are exempt.
A debtor may exempt the following personal property items:
- up to $150 in watches
- up to $250 in books
- up to $400 in musical instruments
- up to $500 in clothing
- up to $800 in animals
- up to $1,000 total of the following: bible, bicycle, typewriter, sewing machine, computer, burial plot, rifle, pistol, or shotgun
- up to $2,000 in engagement and wedding rings
- up to $6,000 in household furniture as well as appliances that are not already covered by other exemptions
- prepaid rent or security deposit to $2,000 or 1.5 times your rent (whichever is less), in lieu of using the homestead exemption
- awards received as the result of wrongful death
- all teaching materials for youth, and
- certain professionally prescribed health aids.
Unemployment compensation is exempt only if it is not co-mingled with other funds and only if it is not being used for child support orders.
A debtor is able to exempt the lesser of the following wages, per week:
- 25% of disposable earnings, or
- earnings in excess of 30 times the federal minimum wage.
This does not apply to taxes and is also modifiable to account for any support claims.
Workers’ compensation is exempt. Employers are entitled to receive a credit for benefits that have already been awarded.
Working with a Bankruptcy Attorney
Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix chapter 13 bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.
668 N. 44th St., Ste 320, Phoenix, AZ 85008