If you are facing a large amount of debt, it can be difficult to figure out what the best options are to move forward. Given the confusing nature of bankruptcy laws and common misconceptions about what filing will mean, you may be holding on to some false ideas. In this post, we will give you a brief overview on two types of personal bankruptcy and set the record straight on how homeownership plays into a bankruptcy filing.
Which bankruptcy filing makes sense for you?
The United States Courts lay out two main types of personal bankruptcy Indiana and Kentucky residents can file:
- Chapter 7: This type of bankruptcy involves liquidating assets in order to pay back debts. This being said, not all assets will necessarily be liquidated as there are exemptions. In some situations, a home can be exempt.
- Chapter 13: This type of bankruptcy is often referred to as a reorganization bankruptcy. With this, outstanding debts are reorganized into a more manageable payment plan, which is then paid back over the next three to five years. Many working homeowners find relief with this type of bankruptcy as the filing puts an automatic stay on any foreclosure proceedings and gives owners a chance to get current on their mortgage.
How do I know if I will lose my home?
Everyone's situation is different when it comes to homeownership and what is affordable and what is not.
In terms of filing for bankruptcy, as mentioned above, there are cases where a home can be exempt while filing for Chapter 7 bankruptcy. It all comes down to how much equity is in the home. Both Kentucky and Indiana have different homestead exemptions. An attorney who handles bankruptcy in these states will be able to look at the fair market value and how much is owed on the home to determine the overall amount of equity one has.
With Chapter 13, many find that restructuring their debt puts them in a position to get caught up on their mortgage payments and avoid foreclosure. However, while Chapter 13 may be the right solution for one person, it may not work for another. This is why homeowners are highly encouraged to reach out to an attorney to learn more about the different bankruptcy processes.