Filing for bankruptcy while owning a house and making payments is common. Although bankruptcy is often used to stop foreclosure, some people file for other reasons. They may never have missed a payment on their mortgage, but are months behind on excessive credit card debt and other loans. Filing for bankruptcy allows them to reorganize their finances and end harassment from debt collectors while keeping their homes.
Exemptions
Bankruptcy exemptions allow you to protect certain assets during bankruptcy, including your home. The University of Maryland University College reports that one popular form of bankruptcy, Chapter 13, allows you to keep all of your property, including real estate. Your personal residence and homes you own as rental property can be protected through Chapter 13. It is also possible to use an exemption to keep a primary residence during Chapter 7 bankruptcy. Bankruptcy exemptions vary by the state, with dollar limits placed on how much you can exempt. Chapter 7 is typically used to liquidate assets to pay creditors, although a primary residence can be protected.
Fresh Start
Bankruptcy is designed to be tough but fair while paving the way for eliminating debt and eventually rehabilitating your credit. Chapter 7 can be completed in only a few months, with unsecured debt such as credit cards completely eliminated. People filing for Chapter 13 must complete a payment plan lasting three to five years. All unsecured debt remaining after the payment plan ends is eliminated.
Mortgage Payments
People who have been paying their mortgage should expect to continue doing so in bankruptcy. A homeowner who has fallen behind on her mortgages can use bankruptcy to live free for several months but eventually will lose the property to foreclosure if she do not make arrangements with her lender to bring the account current.
Alternatives to Bankruptcy
People whose mortgages are always paid on time should seek alternative assistance for credit problems before choosing bankruptcy. Not missing mortgage payments means you have your most important asset -- shelter -- under control. That allows you to seek alternatives for resolving debt related to credit cards and other loans. For example, allowing your car to be repossessed and negotiating any remaining balance is a solution for automobile debt you cannot afford. The repossession will hurt your credit rating, but not as much as a bankruptcy. Credit card debts can also be negotiated, with settlements for less than the full balance possible. Contact lenders directly to discuss resolving debts through settlement.
Credit Reports
Bankruptcy is listed on credit reports for at least 10 years, including the date of your filing and the date of the discharge or dismissal. In Chapter 13, the discharge can occur up to five years after the filing, meaning bankruptcy information will be listed on your credit report for up to 15 years. Other negative credit information, such as settlements and auto repossession, are listed for seven years.
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