Under Florida Statute §222.01, a debtor who files bankruptcy is allowed to exempt their homestead. This means that you may be able to keep your home. We need to answer two questions to make the determination of whether you can and should keep your home.
First, do you have equity in your home?
If you have equity in your home, chances are you should probably consider keeping your home. This is because you will probably make more money by selling the home or getting rid of the home outside of bankruptcy.
If you do not have equity in your home, you should look at how underwater the value of your home is. You can get the value of your home from your county property appraiser’s office. You can get the amount of the balance of your mortgage from your most recent mortgage statement. If you are underwater, you should consider whether it makes sense to keep this home.
You want to also consider what the interest rate on your mortgage is and what your monthly payments are. You want to make sure that your payment is affordable based on how much your income is. An “affordable payment” should be about 31% to 35% of your (before taxes) income. If your mortgage payment is not affordable, you should consider surrendering your home in bankruptcy.
Second, are you current on your payments?
If you are behind on your mortgage payments, you may not be able to keep your home. Your ability to keep your home will depend on how and whether you can catch up on those missed payments. Your ability to keep your home will also depend on which chapter of bankruptcy you file.
In a Chapter 7 bankruptcy case, you must be current on your mortgage payments at the time of filing your bankruptcy case and/or you must intend to file to request a mortgage modification mediation (MMM) regarding your mortgage. In an MMM, you will need to provide financial information and complete paperwork for your mortgage company so they may make a determination as to whether you qualify for a mortgage modification. If you do qualify, a mortgage modification can take place within the Chapter 7 case and allow you to keep your home. If you do not qualify for a mortgage modification in a Chapter 7 case, you will either have to convert your case to a Chapter 13 case or you could risk losing your home in Chapter 7. You may also choose to surrender your home in the Chapter 7 case.
In a Chapter 13 bankruptcy case, can either file to request a mortgage modification mediation (MMM) regarding your mortgage or you can catch up on your mortgage payments through your Chapter 13 Plan. In a Chapter 13 plan, you can catch up on your payments over five years, making the catch up period a little more reasonable for your budget. If you request an MMM and you qualify, the mortgage modification will take place within the Chapter 13 case. At that time, you could either convert to a Chapter 7 case (if keeping the house was your only reason for filing Chapter 13) or you can choose to dismiss your case. and allow you to keep your home (if keeping the house was your only reason for filing Chapter 13). If you did not qualify for a mortgage modification in a Chapter 13 case, you will have to catch up on your mortgage payments over five years in order to keep your home. This option may or may not be affordable based on your budget and how behind you are in your payments.
In most cases, bankruptcy just does not take your house. There is usually some inaction or failure on the debtor to do what is necessary by the court or in the mortgage modification mediation process. This means that debtors have the opportunity to fix things, catch up on payments, switch to a different chapter of bankruptcy, etc. A debtor who may ignore these opportunities may lose an asset, including a house. Additionally, mortgage companies can move things through the bankruptcy court more aggressively if you are significantly behind on your payments.
If you or someone you know is considering filing bankruptcy and may have questions about their home, please contact our office at 727-359-0367.