What can happen to your house in a chapter 7
A New Jerseychapter 7 trustee will only sell a debtor’s house if the house has substantial value. It is very unlikely that a chapter 7 trustee will surprisingly sell a debtor’s house, because prior to the filing the debtor should know the house’s value and whether the trustee is permitted to sell the house.
The trustee is required to perform a liquidation analysis to determine if he can sell the debtor’s house. In general, the trustee will obtain the fair market value of the real estate from his source. The mortgage payoff(s) is subtracted from the value. Thereafter, 10% to 13% cost of sale is deducted. Subsequently, the debtor(s) co-owner’s $21,450 exemption is deducted. If there is a negative value after the deductions, the trustee is not permitted to sell the real estate. If there is a positive amount, the trustee may attempt to sell the house. However, the debtor may prevent the sale, by paying the trustee the amount that would have been received, if the house was sold. Under that scenario, the funds paid to the trustee, must come from a third party or from the debtor’s exempt funds. Please note that if a married couple files for bankruptcy protection, both of whom own the house, each spouse can apply their $21,450.00 exemption in the liquidation process.
Under virtually all circumstances, the filing of a chapter 7 bankruptcy case stops a mortgage foreclosure action. However, if a debtor is behind with their mortgage payments, the bankruptcy filing will not permit the debtor to save their property from foreclosure. Typically, if the debtor is behind with payments, the mortgage company will file documents with the court requesting permission to pursue or commence the foreclosure action. The court will grant the mortgage company’s request, if the debtor is behind with their payments and the trustee is not interested in selling the house. If the mortgage company pursues the foreclosure action, the debtor may reside in the property through the entire foreclosure process, through the date of the sheriff’s sale.
A debtor is permitted to pursue a loan modification at any time before or after the bankruptcy filing and discharge. The debtor may pursue a loan modification after the case is discharged, through the foreclosure process and prior to the sheriff’s sale.
A discharge in a chapter 7, discharges (eliminates) the mortgage company’s right to collect any of the mortgage debt (money) from the debtors. However, if the debtor is behind with their mortgage payments, the mortgage company can pursue the foreclosure action for the purpose of taking the real estate only.
Robert Manchel is an expert bankruptcy lawyer in New Jersey, whose practice is limited to bankruptcy law. Robert Manchel can be reached at 1 (866) 503-5655 for a free consultation regarding how bankruptcy protection can help you personally.