Officials have repeatedly extended the federal foreclosure moratorium. But July 31, 2021, is apparently the final deadline. Some additional relief programs are available, as outlined below. However, many homeowners might not qualify for them. For all intents and purposes, the bank has the final say. In contrast, pretty much everyone qualifies for Chapter 13 relief. And, homeowners control the process.
Moreover, available post-coronavirus, government-sponsored mortgage relief programs are largely stopgaps. For the most part, families who were struggling financially will continue to do so. Bankruptcy, on the other hand, has a number of benefits beyond mortgage relief. This federal debt relief program eliminates most unsecured debts, such as medical bills and credit cards. Furthermore, as outlined below, bankruptcy can make your home more affordable in the long term.
Formal Protections
Most states protect a certain amount of home equity from a creditor or trustee seizure. The trustee (person who manages the bankruptcy for the judge) may liquidate the nonexempt property and distribute the proceeds to creditors.
For married filers, Georgia law exempts up to $43,000 of equity. Unless you have paid off more than about half the loan, this exemption amount is more than enough to shield your home, at least in most cases.
Other asset exemptions include motor vehicles, retirement accounts, personal property, and government benefits, such as Social Security benefits. Typically, only luxury items, like yachts and vacation homes, are nonexempt.
Informal Protections
A tenancy of the entirety could protect all the equity in your home, regardless of its amount. It’s against the law for a bank to seize one person’s property to pay another person’s debts. If the Husband files bankruptcy individually, and the Wife is on the deed as a tenant with ownership rights, neither the bank nor the trustee can touch the couple’s home.
Proper asset valuation could be important as well. The Bankruptcy Code requires owners to list the as-is cash value of all their property. A home’s as-is cash value might only be a fraction of its fair market value. If a home’s fair market value is $200,000, most “we buy ugly houses” home investors might only offer $20,000. As a result, the home equity exemption goes further.
These informal protections are rather complex. Only an experienced Georgia bankruptcy lawyer should use them.
Making Homes Affordable
Speaking of fair market value, many owners have watched as their homes’ values have declined, usually through no fault of their own. Normally, being underwater on a home loan is a bad thing. Bankruptcy could turn a bad thing into a good thing.
Assume Richard used 80/20 financing to buy his $400,000 home. So, he has a $320,000 senior loan and an $80,000 junior loan. If Richard’s home is now worth $375,000, the value isn’t large enough to fully secure both loans. As a result, a judge could reclassify part of the junior loan as an unsecured debt. As mentioned above, most unsecured debts are dischargeable in bankruptcy. IN other words, the home loan reclassification could save Richard hundreds of dollars a month.
Debt renegotiation is also an option. A Georgia bankruptcy lawyer could use currently low market interest rates to significantly reduce your home loan interest rate. Banks know they must make some compromises. If they don’t, the debtor could convert to Chapter 7, walk away from the loan, and leave the bank with almost nothing.
Buying a House After or During Bankruptcy
If you file Chapter 13, the post-bankruptcy mortgage waiting period usually varies between one and four years. That waiting period is usually long enough for credit score recovery. After an exit from bankruptcy, a few simple tips, such as remaining current on secured debt payments and responsibly using a credit card, can raise your score significantly.
Nevertheless, post-bankruptcy borrowers may still face some obstacles. A Georgia bankruptcy lawyer can connect former bankruptcy debtors with lenders who works with damaged credit borrowers. Fundamentally, most banks are eager to make these loans. They can legally charge a higher interest rate since the loan has a higher risk.
In fact, people who are still in bankruptcy could be able to buy a house. Most of these loans are owner-financing loans. Since the debtor is under court supervision, the judge must approve the additional debt.
Before that happens, the judge usually wants to see all the details about the proposed transaction, especially the interest rate and monthly payment amount. If the terms aren’t outrageously one-sided, the debtor needs a new home, and the new home is not Wayne Manor, most judges approve these transactions.
Please be aware that this article was written and published in conjunction with the help of Gorilla Web tactics, Law Firm Marketing Agency, and does not contain legal advice. Please do not act or refrain from acting based on anything you read in this article.
About the Author
Lee Paulk Morgan is a principal attorney in Morgan & Morgan, Attorneys at Law, P.C. He is an active member of several state and national bar associations. In addition to consumer bankruptcy, Lee practices workers’ compensation and disability law. Click here to learn more.
