Can I Keep My House or Car?

The Law Office of David M. Serafin has assisted numerous bankruptcy filers in Denver and other areas of Colorado not only stave off foreclosure or repossession, but also save money by filing for bankruptcy.

In a chapter 7 bankruptcy, known for being a quick and simple means of eliminating debt, it’s still very possible to keep your house or car if the value of the property is under the applicable Colorado Homestead Exemption and so long as you’re current on the mortgage or car payment. And, if your vehicle is upside down in equity, you may be eligible for a Section 722 Redemption. Redemption allows you to keep the vehicle by paying only for its fair market value if you can either pay in a lump sum the value of the vehicle or obtain financing to do this.

Chapter 13 bankruptcy allows you to immediately stop a foreclosure sale and propose a repayment plan of up to 60 months to cure and pay back the past due mortgage arrears interest free. So long as you continue to make regular monthly mortgage payments going forward AND make the Chapter 13 Plan payment (which includes the past due amount), you will save your home and obtain a discharge at the end of the case. Note that one Bankruptcy Court judge in Colorado has held that Chapter 13 discharge will not enter if you don’t remain current on monthly mortgage payments regardless of whether you completed all Trustee Plan payments so staying current on the mortgage is critical. Note that Chapter 13 in Colorado will only protect your house if filed before any foreclosure auction. Chapter 13 can also save your vehicle and allows the same five years to cure any delinquency on car payments.

Back when property values in Denver and the rest of Colorado were much lower due to the financial crises, we could file a motion to determine secured status of a second mortgage. If your house was “upside down” as to the first mortgage alone, the second mortgage could be stripped off (discharged at the end of the case without any further requirement to continue with the normal second mortgage payments starting on the date of filing). For example, the second mortgage could be stripped off and determined to be unsecured for a house worth $400,000 with payoffs on the first two mortgages of $420,000 and $50,000, respectively. In this example, the house would be underwater as to the first mortgage alone.

But, property values in Denver and most of Colorado have seen a steady appreciation since 2012 such that rarely does a house not have any equity as of 2020. It remains to be seen the effect that COVID-19 will have on the housing market in Colorado.

In Chapter 13, it’s also possible to cram down a car loan to eliminate any negative equity. (Vehicles usually depreciate in any economy unlike real estate which can swing up or down.) a Chapter 13 cram down can reduce the loan balance down to the fair market value of the vehicle and we can often reduce the interest rate down to 5% or less if the vehicle was purchased 30 months or less prior to the Bankruptcy filing. For instance, consider a car worth $10,000 secured by a loan balance of $20,000. You can pay for the car through the Chapter 13 Plan by amortizing $10,000 plus a lower interest rate over up to 60 months.

A mortgage servicer or car lender will often request that the Debtor sign a Reaffirmation Agreement, which are dangerous because the discharge protections in the Bankruptcy Code are removed. For example, in my last example, a car lender’s only recourse for a car for which the payments are not current would be to repossess the vehicle (with Bankruptcy Court permission during the case). You would lose the $10,000 car but at least the entire $20,000 debt would be discharged. Signing a Reaffirmation Agreement leaves you still on the hook for any resulting deficiency even after the lender repossesses the car. With that said, a Reaffirmation Agreement may be beneficial if the car is not upside down and also if the lender significantly lowers the monthly payment and/or interest rate. A bank generally doesn’t want the property back; they instead want to get paid.

As an experienced attorney versed in Chapter 7 and Chapter 13 Bankruptcy law in Denver and all of Colorado, attorney David M. Serafin meet with you and discuss all available options to allow you the most affordable way to keep your house or car. The vast majority of folks who file Bankruptcy in Colorado WILL keep their house and car so long as they are able to continue to make monthly payments just like normal while eliminating most to all of their unsecured debts, such as credit cards, medical bills and collections.