Protecting Your House In An Indiana Bankruptcy

In many situations, the family home is a debtor’s largest financial asset. The house usually has an emotional value to the family that far eclipses the substantial financial value. So, protecting your family home is the number one priority of most Chapter 13 attorneys. There are a number of ways to accomplish this task, and a good lawyer will utilize all of them.

The Automatic Stay in Indiana

As soon as debtors file their voluntary petitions, Section 362 of the Bankruptcy Code goes into effect, in most cases. The Automatic Stay gives many distressed homeowners necessary breathing room.

Most mortgage banks begin adverse action after only one or two missed payments. That usually includes harassing collection calls and letters. Most moneylenders very quickly move to the next step, which is usually a notice of acceleration. Essentially, the bank demands payment of the entire unpaid principal balance and refuses to accept further partial payments. That move drives the homeowner deeper into delinquency.

After about four or five missed payments, the bank usually institutes foreclosure proceedings. Indiana is a judicial foreclosure state, so a lender must have a court order to foreclose on a home. That usually buys the homeowner a little extra time, but not very much.

The stay stops foreclosure proceedings, whether they are in court or out of court. The stay usually remains in effect as long as the bankruptcy case is active.

Maximizing the Property Exemption

Joint debtors may exempt up to $28,600 in home equity. So, if the owners have a $100,000 house with $20,000 in equity, the bankruptcy judge will not force a sale.

A savvy attorney can use the bankruptcy valuation process in Schedule A to maximize this exemption. Under the Bankruptcy Code, the debtor must list the as-is cash value of an asset. The easiest way to determine your home’s as-is cash value is to get a written offer from a home investor. Typically, these companies only pay about 50 cents on the dollar.

So, in the above example, assume the homeowners have $30,000 in equity. The house might still be exempt. The as-is cash value of that house may only be $50,000. If that’s the case, if the judge forced a sale, there may not be enough money left over to distribute to creditors after the debtors receive credit for their equity.

The Repayment Plan in Indiana

Bankruptcy also helps owners catch up on past-due payments. In a Chapter 13, homeowners have up to five years to pay the outstanding balance down to zero. The repayment plan is income-based. Typically, the moneylender must accept the debtor’s repayment terms, so long as the trustee approves the plan.

Sometimes, a bankruptcy lawyer can use a strip-off to decrease your monthly payment. The 80/20 mortgage is a good example. If the house’s value is too low to secure both notes, the junior mortgage (the 20 percent note) becomes an unsecured loan. These obligations are dischargeable in a Chapter 13. The strip-off could save a homeowner thousands of dollars a year.

Reach Out to Tenacious Attorneys

Bankruptcy can save your home. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours visits are available.

Resource:

law.cornell.edu/uscode/text/11/362