Debtors struggling to keep with their debts and trying to keep their home often hear that bankruptcy is a way to keep your home. This is true in part, but not necessarily what debtors have in mind. Bankruptcy does not force a creditor to accept the terms a debtor is looking for and there is no right seeking a change of the interest rate or other terms. A bankruptcy attorney would tell a debtor about the many things a bankruptcy can do for the debtor.

The first thing a bankruptcy attorney would do for a debtor is to determine which bankruptcy a debtor can file for. A Chapter 7 allows debtor to discharge all debts, but the problem is that a house is security for a debt. Mortgages are secured by a home and cannot be rid of without surrendering the house. The house has a lien and even though the obligation to repay the debt back on the house can be discharged in bankruptcy the lender can still foreclose on the house, because of the lien on the property. When there are two loans on a property in California and many other states the risk in foreclosing a property is not so much on the first loan, but the second loan. The second loan more often than not goes unpaid and the homeowner continues to be liable. Bankruptcy gets rid of the debt obligation to the unpaid second loan. Debtors often ask about discharging the second and all other debts and keeping the house and the answer is no the debtor may not do as such. The intent of the bankruptcy code was to give debtors a fresh start, a chance to start all over without the burden of heavy debts.

The other commonly used bankruptcy chapter is Chapter 13. The Chapter 13 is a repayment plan based on ability to pay. The debtors is allowed to keep a portion of his monthly income to live on and the rest is turned over to the trustee that in turn repays some of debts on a prorated basis. Normally the repayment plan is for five years.

Bankruptcy also does allow a debtor to catch up with mortgage payments in a Chapter 13 bankruptcy. A Chapter 13 bankruptcy allows the debtor to prioritize debts. The debts are prioritized by the code, not by the debtors choosing. Property taxes would take high priority, followed by the mortgage payment, car payments, and then at the bottom such debts as credit card debt, hospital bills, and other unsecured debts. Student loans are not high on the food chain, but at the end of the bankruptcy repayment the student loans remain and the other unsecured debts do not. A Chapter 13 allows the debtor to catch up on the back mortgage payments and then once caught up, the debtor can begin repaying the unsecured debt.

One of the primary reasons for filing bankruptcy is to catch up with mortgage payments. A Chapter 13 allows debtors that are living a very stringent life style to catch up, but the same is not true of debtors that live a lavish style or even an above average life style. A Chapter 13 protects a portion of a debtor’s income, which is statistically sufficient to live on. There is enough for food, clothing, the mortgage payment, utilities, and the cost of operating a car. It does not take into account such things as emergency car repairs, emergency hospital visits, and the like. For some debtors the Chapter 13 improves the quality of life, because the debtor finds breathing room and is able to live on what the bankruptcy allows for others, this is not the case and they find it difficult to adjust.

Bankruptcy does make not any changes to the mortgage and will not help a debtor that is simply not able to afford the house. A general rule is that the mortgage should not exceed about 29% of the gross income of the debtor. If the mortgage is 40%, it is not likely the debtor will be successful in repay the mortgage back.

Speak with an experienced chapter 7 bankruptcy attorney for free.

Author Bio: Speak with an experienced chapter 7 bankruptcy attorney for free.

Category: Legal
Keywords: bankruptcy, chapter 7, chapter 13, lawyer, attorney