Your Home - When you have worked hard to own a home and something happens that is not your fault, it can be heartbreaking to lose it. However, even though you may have to file a petition in bankruptcy, there is an excellent chance you can save your home.
Your Car - For many people, their car is their lifeline. A car can mean the difference between keeping a job or losing it, it can be the only way to take a member of the family for medical care and it can be the only way to get children to school and their activities. For most people, having to file a petition in bankruptcy does not mean the loss of a car.
The discussion below applies to New York cases only.
Keeping Your Home
If the equity in your home is less than $50,000.00, you can keep your home even though you file bankruptcy. In any situation, you always have to make your mortgage payments, but if you can make your payments and the equity is below $50,000.00 there is no danger to your home.
The "equity" in your home is the amount that is free of mortgages or other liens. For example, if your home has a value of $350,000.00, and the mortgage balance is $300,000.00, your equity is $50,000.00 and your home will be safe.
The $50,000.00 exemption applies to your share of the home. Thus, if you own a one-half interest, you own one-half of the equity. For example, if the home has a value of $350,000.00 and the balance of all mortgages is $250,000.00, and you own it with your spouse or one other person, the equity in the home would be $100,000.00, but your share of the equity would be $50,000.00.
If your share of the equity is more than $50,000.00, you can still keep your home if you file under Chapter 13 and pay back to your creditors an amount equal or greater than the amount over the equity. And, no matter how much the house is worth, if you pay back all of your debts in a Chapter 13, you can always keep your home.
For an explanation of what can be done when your mortgage is in arrears, see the explanation for Chapter 13.
Keeping Your Car
When the car is financed and your payments are current -
- If you can make your car payments, you can usually keep your car. This is because the equity in a car is usually below the exemption, or the amount you may keep, which in New York is $2,400.00.
- There may be times when the car's value is more than $2,400.00 above the loan balance. In such cases the cost of picking up the car, transporting it to a secure lot, storing it, insuring it, advertising it for sale at auction, appraising it, auctioning it, paying off the loan and the attendant paperwork means that picking it up and selling it will not be worth the costs. In such a case you will be allowed to keep the car as long as you make your payments.
When the car is financed and your payments are past due -
- It may or may not surprise you, but the banks and car companies do not want your car back. They would much rather have the money. They lose money when they get the car back because of the costs of repossessing a car and selling it at auction.
- When you are behind in your car payments, the missed payments can be put into a plan and paid off over 36 to 60 months, just like the missed payments on a house can be made up, in a Chapter 13. During the time you are making up your missed payments, you must, of course, make all of your current payments as they come due.
- When you are behind on only a payment or two, we can often make an arrangement directly with the bank or finance company to make up the payments over a few months. In this way, if you would otherwise be filing under Chapter 7, you can still do so.
When the car is paid for -
When the car is already paid for, its value is determined by an appraisal. If it is $2,400.00 or less, you are able to exempt its full value. If it is above $2,400.00, there are several possibilities:
- If it does not exceed $2,400.00 by much, the costs of taking the car from you and selling it would outweigh any benefit to your creditors.
- If you have exempt money in the bank or a relative or friend willing to help, you can buy back the non-exempt interest in the car.
- If you have a regular source of income, there are finance companies who will help you finance a replacement car.