Is there any way to keep your home with a Chapter 7?

[Anonymous]

I have a first consultation with a lawyer tomorrow to discuss my options, but I'm trying to find out if there is anyway, if I do file Chapter 7, if I can keep my home.  I live in VA, I'm a single mother with 2 teenage boys, 1 about to go to college and I work full time.  I am currently enrolled in a debt management program thru National Debt Relief, my monthly payment to them is $1142.00, I have been in that program for about 6 months, and I'm struggling to keep up, I have very little left over every month, no savings, and no way to finance any emergency that may come up.  I would only file Chapter 7 if I can keep my home, because I would have nowhere else to live.  Mortgage is current and paid on time.

Quick overview of my current situation; 

Monthly Income (after tax) $5,335.00

Monthly Expenses (including current debt) $5,130.00

Current amount of unsecured debt $60,000

Equity in home (ballpark) $50,000

[Anonymous]

This answer will depend on how much you are able to exempt. A quick google search for "Virginia Bankruptcy Exemptions" suggested that you can exempt as a homestead exemption, $5,000 plus $500 for each dependent (assuming you are not over 65 or a disabled veteran). In otherwords, $6,000. Not much. The wildcard exemption would not apply, as you max'ed out your homestead exemption.

Some attorneys will suggest a Chapter 13 bankruptcy because there's more money to be made. But nearly any attorney will suggest a chapter 13 bankruptcy because you have assets $44,000 of equity) that you are unable to exempt. Before meeting with an attorney I would get a careful review of how you came up with your estimate of $50k. 

If you are able to provide an appraisal (or whatever your jurisdiction finds an acceptable valuation of your home) that shows your equity is less than $6k, you should be good to go. Don't simply rely on Zillow estimates. I'd first start with a real estate agent who can put togeter a Comparitive Market Analysis (CMA). 

If your equity exceeds the exemption limit, you can either try to negotiate with the trustee (for example, pay it back with another valuable asset). Perhaps pay over time (just a wild guess -- I'd ask an attorney if that might be an option). 

Otherwise you're looking at a Chapter 13 bankruptcy, where your disposable income will be used to pay off your creditors. The payments must at least total the amount of the equity you cannot exempt.

Finally, using your equity could be another option. If your house needs repairs, it may be smart to do them now using a home equity loan. Another question for your attorney: what if you got an equity loan to pay for college? While these may be good ideas, it sounds like your debt-to-income ratio would make it difficult to get approved.

[Anonymous]

Thank you so much for your reply!!  That all makes sense to me, and what I assume my lawyer will tell me tomorrrow based on the numbers I provided here.  However, I have spent all day trying to educate myself on the different options available to me, and I did some digging on here too.  I pulled my County Real Estate Assessment for 2018, and that shows my home value at $210,000.00, and I did a Redfin Estimate, and that shows my property is worth $226, 000.00 (which is actually what I think it would sell for, based on other models like mine have recently sold for in my neighborhood).  Zillow had a very high estimate of $265,000.00.  I printed the Redfin and county tax assessments, and I will bring those to my meeting tomorrow, to see what he thinks.  If they will accept the $226,000.00 estimate, after my homestead exemption of $6000, and paying off my current mortgage of $208,000.00 that leaves equity of $12,000.00 that would maybe cover the 6% it would cost to sell the home.  Keeping my fingers crossed for a better understanding tomorrow

[Anonymous]

Not to burst your bubble ... However, the cost associated with selling a property is generally not factored in the valuation. Again, attorneys in your juridiction can provide you the correct legal response. I would meet with at least 3, and preferably those that have experience negotiating non-exempt assets in a Chapter 7 case.

As far as the tax assessed value, I would expect this to be totally disregarded. It is very common for the tax assesed value to be very different from the market value. What would be more telling is sales data of similar properties in the past 6 months, and an analysis of how your home compares to those homes. That's ultimately what a CMA is. 

Another thing for you to consider is: How long can you go without filing? It's possible that as interest rates rise and the market slows down (in the winter) values may go down. This is a very bad time to be a buyer -- or in your case, one who seeks low values. 

Other thought: It is not unreasonable for two similar properties to be $12k off in value. I would carefully review the similiarities and differences between what sold recently, what's on the market now, and your home. If you can justify a lower price (less up-to-date, etc.) then you should be good. You may need to (pay for and) provide an appraisal.

Final thought: If the cost of sale is not factored, it's still a reality for the trustee. If you can offer the trustee something that is less than $12k but more than what they would receive after selling the property (nothing, presumably), you should be able to negotiate and stay in Chapter 7. Some people do this by offering cash or other exempt property that can be easily sold. 

[Anonymous]

I had my 341 a few weeks ago and I am waiting on discharge now which will take a couple months. I was able to keep my house by reaffirming my mortgage. I was never behind on payments so I don’t know exactly how it works if you have back payments, foreclosure started, back taxes, or anything like that but you don’t indicate that would be an issue. Had there been significant equity in my house, I possibly would have had to sell it to pay debts with the difference. I just bought it last year and property values haven’t gone up so that was irrelevant to me as well.

I have also read you can keep your house even if you don’t reaffirm; it just doesn’t report to the credit bureaus anymore. I have read you retain all the same rights but can walk away at any time without taking a further hit to your credit. These were not things I actually discussed with my lawyer as he recommended I reaffirm. And that definitely wouldn’t apply if you weren’t up to date on the mortgage. Again, these are things I read myself online and not things I actually heard from a lawyer so you’d want to discuss that with yours if it interests you and you’d qualify. I have read a lot of lawyers recommend you DON’T reaffirm particularly if you worry about having an issue with the payments in the future. Mine said I can afford it and keep up with it and it’s a good way to repair my credit but I would not have lost the house even if I didn’t reaffirm because foreclosures and crap cost a lot of money and they wouldn’t even have the right to sue for the difference on the house if it was discharged in a bankruptcy. I am in Michigan.

[Anonymous]

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@Anonymous wrote:
I have read a lot of lawyers recommend you DON’T reaffirm particularly if you worry about having an issue with the payments in the future. Mine said I can afford it and keep up with it and it’s a good way to repair my credit but I would not have lost the house even if I didn’t reaffirm because foreclosures and crap cost a lot of money and they wouldn’t even have the right to sue for the difference on the house if it was discharged in a bankruptcy.  

So a few thoughts here:

1. For others following along, you can generally keep your home in a Chapter 7 bankruptcy. The problem generally arises if you have non-exempt equity or arrears. 
2. Although you reaffirm a mortgage, some lenders will continue to stop reporting altogether.
3. The cost of reaffirming (continuing to be liable for a mortgage) seems like a high price to pay for the potential of positive credit reporting. I believe a secured loan would be equally helpful. Also, the lack of a mortgage payment could artificially decrease your debt-to-income ratio.
4. Reaffirming is generally not advised because the borrower remains liable for the mortgage no matter what. If your home is destroyed due to a flood or earthquake and you don't have flood or earthquake insurance, it would be a lot easier to walk away than to figure out how to handle the debt (2nd bankruptcy?). Unless some special circumstance requires a reaffirmation, it is almost always not a good idea.

[Anonymous]

Thank you all so much for the input, it's a great help, and nice having somewhere to talk about this without judgement.  I am current on my mortgage, never been late, but I probably have too much equity, more then the $6,000.00 I'm allowed in the exemption for VA to keep it in a Chapter 7.  I'm looking forward to my meeting with the lawyer today to see what he thinks, and then I can weigh my options better, and talk to another couple of lawyers for comparison.  I'll post an update this afternoon   Hope you all have a great Monday!

[Anonymous]

Okay. Thank you. But I listen to my lawyer.

[Anonymous]

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@Anonymous wrote:
Okay. Thank you. But I listen to my lawyer.

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Lawyers give bad advice on reaffirmation ALL of the time.

There are other ways to give your credit the same boost that getting your mortgage to report again would.

You never want to reaffirm anything if it can be helped.

[Anonymous]

I just got back from my initial consultation with a lawyer, and immediatly came home and set up a consultation with another lawyer.  This gentleman that I met with today, seemed very unsure of how to do the means test, and was stumped on how to list expenses for my son that is leaving for college next month.  He will still be a dependant of mine, I will be paying for his room and board, and his spending money while he is in his first year at least (most likely all 4 years), but he couldn't figure out how to show those expenses on my test.  I can't imagine this is his first time with a client that had a child heading off to college?  He really didn't say too much to me while he was filling it out, other then asking me to do some math for him on my calculator lol!!  It is unlikely I will qualify for a Chapter 7, and he said that he wasn't even sure he could get me into Chapter 13.  Now I understand why everyone on here says to get 2-3 meetings with different lawyers.