Can I Keep My House Or Car?
An experienced Denver bankruptcy lawyer, David M. Serafin has assisted numerous debtors in Denver and other areas of Colorado not only stave off foreclosure or repossession, but also save money by filing for bankruptcy.
In chapter 7, 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.
However, if you’re either facing foreclosure or are simply behind in your mortgage payments, chapter 13 can operate to save your home or vehicle. A chapter 13 bankruptcy filed before a foreclosure sale date allows you to delay the foreclosure and reorganize your debt. (Filing after a foreclosure sale leaves you at the mercy of the lender which has full discretion whether to reinstate the original mortgage or agree to a new loan in lieu of the inevitable eviction.) Chapter 13 will also allow you to make up any past due monthly mortgage payments over a 3 to 5 year time frame (usually while simultaneously paying back unsecured creditors) to provide you more time to get current on the mortgage.
A Section 506 motion to strip off a second mortgage can be filed in chapter 13 (but not a chapter 7) if the balance on the first mortgage alone exceeds the home’s fair market value. The “strip off” renders the junior lien(s) unsecured – now akin to easily dischargeable credit card debt or medical bills. Stripping off a junior lien is easier if accompanied by evidence of the property’s diminished value on the date of the filing, supported by a written realtor option or appraisal (the latter is particularly necessary when the lender cites to its own valuation and objects to the strip off).
Further, also only in chapter 13 bankruptcy, you can “cram down” a car loan to its fair market value, significantly reduce the interest rate and stretch out the duration of monthly payments, if the vehicle is at least 2.5 years old.
Regarding secured debt for a home or vehicle, a lender will almost always demand that the debtor sign a Reaffirmation Agreement, which re-obligates you to pay a new loan (even if payments are the same) whereby, if the case of future default, you’re still on the hook for this debt. Put another way, only a subsequent bankruptcy would discharge the debt revived by the Reaffirmation Agreement.
For this reason alone, absent unusual circumstances such as the lender taking an extreme step such as lowering a very large portion of principal and interest on the debt, I almost never recommend Reaffirmation Agreements. Rather, even though a lender may threaten to seize collateral with a Reaffirmation Agreement, we have never seen this happen when the debtor instead remains current on payments. In other words, the lender will almost always take your money.
There are numerous ways to keep your house or car in both chapter 7 or chapter 13 and escape the pressures imposed by overreaching lenders.
An experienced Denver bankruptcy lawyer, David M. Serafin will specifically outline how to best keep your house or car, while getting rid of your debt and actually saving money by filing for bankruptcy. The Law Office of David M. Serafin will answer all questions about your secured debts in order to help you achieve a fresh start financially.