Lawyers People Love unpacks homeowner rights during a Tennessee bankruptcy
When health fails, income declines, or debts start to snowball, you might start to consider bankruptcy as your only option for regaining financial control. But one question Lawyers People Love hears more than any others concerns what happens to a home when filing bankruptcy in Nashville, TN.
The question of how home ownership impacts bankruptcy in Tennessee ranks among the most critical considerations individuals must weigh. That’s why Lawyers People Love has assembled this brief overview of how you can file bankruptcy in Tennessee and keep your home.
With a basic understanding of your rights and responsibilities, you can navigate the financial and legal waters of bankruptcy and make the most informed decisions about how best you can keep your home. Before you begin, though, you’ll need to know which type of bankruptcy you’ll be filing.
Understanding the basics of bankruptcy in Nashville
Bankruptcy is a legal process through which individuals or businesses can overcome debts that they can’t afford to pay. When dealing with bankruptcy, though, it’s important to understand that both federal and state laws can come into play.
When you file for bankruptcy, you’re declaring in court that you cannot reasonably pay the debts you’ve accumulated without radical action. This can mean either restructuring your debts to make them more manageable or liquidating assets in order to pay them off.
Depending on the amount of debt you’ve accumulated and the type of debt, the value of assets you own, and your regular income, you will have two options when it comes to personal bankruptcy: Chapter 13 or Chapter 7.
Chapter 13 Bankruptcy
When an individual files for Chapter 13 bankruptcy, they eliminate debts by agreeing to a 3- or 5-year repayment plan. At the end of the repayment period, any remaining unpaid debts are canceled. Chapter 13 is a popular choice for individuals who own property they want to protect because it allows them to continue paying their debts while preventing the forfeiture of some types of property. If you’re seeking to save your home from foreclosure, chances are you’ll be filing Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is the most common kind of bankruptcy individuals file. Under Chapter 7, the individual agrees to forfeit personal property for sale — called liquidation — with the proceeds from the sale going to pay creditors. This type of bankruptcy is often called “straight bankruptcy,” and it’s the option best suited for people who want to discharge credit card debt, medical bills, and personal loans. Under Chapter 7, you won’t have a repayment plan, but you’ll also have to sell most of your assets during the process.
Working with a bankruptcy lawyer, you’ll determine which path is right for you. Though there are many considerations, one of the most important is to assess how much equity you have in your home, as you’ll see.
Home equity can determine which type of bankruptcy you file
Jim and Dianne have been struggling to keep up with bills for some time. After she was injured on the job, Dianne couldn’t work. Jim’s company laid him off, and after burning through their savings, the couple are buried under a mountain of medical bills and credit card debt. Recently, Jim returned to work. They have managed to keep up with their mortgage payments, though, and now they want to make sure they get out of their debts without losing their home.
For Jim and Dianne, the first question they’ll need to answer is how much equity they have in their home. If they have significant equity, a bankruptcy court might insist they sell their home to settle debts. Or they could be asked to consider refinancing their mortgage and using the proceeds to pay down debt. With significant equity, Jim and Dianne will most likely pursue a Chapter 13 filing.
However, just because they own a home does not mean Chapter 7 is off the table. That’s because Tennessee’s homestead exemption law provides protections against home seizure during Chapter 7 bankruptcy. Essentially, the home is an exempt asset, and so long as the homeowner has maintained good standing with the mortgage company, they can usually keep their home.
The benefits of filing bankruptcy in Nashville, TN
One of the immediate benefits of filing either Chapter 13 or Chapter 7 bankruptcy is that simply filing stops virtually all collection proceedings for non-exempt debts. This can mean the elimination of garnishments as well as stopping the constant barrage of phone calls, emails, texts, and letters.
However, just because you’ve filed bankruptcy, that doesn’t mean you’re free from your financial obligations — especially where your house is concerned. Remember Jim and Dianne? They’ve stayed mostly current on their mortgage payments. Keeping up with payments is a vital requirement to staying in your home.
While bankruptcy can eliminate debts or help you gain more favorable repayment terms for both secured and unsecured loans, it doesn’t necessarily mean you’ll get out of paying the note on secured assets like cars, houses, or other property. More importantly, bankruptcy can help pause foreclosure proceedings, but it isn’t a cure-all. You’ll still need to come to terms with paying the mortgage.
Your responsibilities during bankruptcy
A final consideration when considering bankruptcy is how you’ll keep up your end of the deal. Your responsibilities will vary depending on the kind of bankruptcy you file and the terms your lawyer negotiates on your behalf.
If you file Chapter 7 bankruptcy, you potentially can take advantage of Tennessee’s homestead exemption to protect your home and equity. But that will mean you have to keep up with your mortgage payments. You also might be asked to refinance your home to tap into equity to pay down debts.
With a Chapter 13 filing, you’ll still have to keep paying your house note. You’ll also have to make regular, scheduled payments to settle your debts. For three or five years, you’re on the hook for the money you promised to pay. Failure to keep up the payments can mean your creditors can reopen the bankruptcy, seize assets, or force you back to the table.
Lawyers People Love can help you file bankruptcy in Nashville, TN
If you are considering bankruptcy, you need guidance you can trust and representation you can count on. Call Lawyers People Love today to schedule a consultation. Or, you can reach out to us with your questions via email. We are here to help.