Protect your home if bankruptcy is coming
State laws vary, so seek professional advice
Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com.
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Dear Credit Care,
We have a home that
does have equity, but we don't want to sell because our credit is ruined and we
won't be able to get another home. We have only credit card debt besides our
home mortgage. We can't pay all the cards. We have been trying for a long time
and have paid them down a lot, but can't any longer. Should we file bankruptcy?
Can we keep our home when we file, or should we just stop paying the credit
cards? We really want to keep our home! -- Laura
is certainly an option if you truly can't pay your credit cards. However, because
the laws changed in 2005, you may not qualify for a
Chapter 7 filing, in which your
credit card debt would be eliminated in full. Unless your income is less than
the median income for your state of residence, you would most likely instead
have to file under Chapter 13, in which at least a portion of your credit card debt
would have to be repaid.
you file a Chapter 13, you would be allowed to keep your home. How much you
would have to pay your creditors in a Chapter 13 filing would depend on your
income and how much you owe in total. Keeping your house in a Chapter 7 filing
(should you qualify for it) would depend on whether the equity in your
home would be considered exempt in your state. Due to the many different
variables involved with filing bankruptcy, it is best to hire an
attorney to assist you with the process. If you can't afford an attorney the
American Bankruptcy Institute has a list of pro-bono bankruptcy attorneys.
bankruptcy laws now require that consumers who wish to file for bankruptcy must
complete a pre-bankruptcy credit counseling session. Talking with a credit
counselor will help you determine if you have other options for paying your
credit card debt, or if filing for bankruptcy is your only alternative. The website for the Treasury Department's bankruptcy division has a list of approved credit counseling agencies for your district.
you have participated in the mandatory credit counseling session you will have
a better idea of whether or not you need to file for bankruptcy, if you can
afford to pay your credit card debt through a
debt management plan or if by
making some adjustments to your spending, you can continue to pay your
creditors on your own.
payments on your credit card accounts prior to filing bankruptcy is not a good
idea. If you don't pay, your creditors could sue in court and receive a
judgment for the amount owed. With a judgment the creditor could garnish wages
(if allowed in your state) or place a lien on your home. Not paying takes the
choices out of your hands and gives them to your creditors.
for bankruptcy will severely damage your credit for many years, but is a viable
option if you have no other workable alternatives. To assure your home is
protected in the bankruptcy, be sure you hire an attorney who is experienced
with the bankruptcy laws in your state.
your credit with care!
See related: Considering bankruptcy? Use the 'divide by 60' test
Tanisha Warner is the communications manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. She manages educational content designed to teach consumers about personal finance topics. You can find more money management advice on Blogging for Change and MMI's Facebook page.
Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Credit Care.
Published: October 8, 2012
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