Chapter 7 and Chapter 13 bankruptcy offers debt relief for individuals struggling to pay their bills. However, the two chapters of bankruptcy have different impacts on real estate. The choice of bankruptcy chapter needs to align with your goals for filing bankruptcy. Our Florida bankruptcy attorney discusses the impact of Chapter 7 vs. Chapter 13 on real estate in this blog.
What Is the Difference Between Chapter 7 vs. Chapter 13 Bankruptcy?
Chapter 7 bankruptcy is often called a “straight” or “liquidation” bankruptcy. It is intended for debtors who do not have disposable income to pay their debts. Disposable income is the money remaining each month after you pay your necessary bills and living expenses. Debtors must meet income requirements to qualify for a bankruptcy discharge under Chapter 7. The Means Test calculates disposable income and determines whether you qualify to file a Chapter 7 bankruptcy case.
Chapter 13 bankruptcy is a reorganization plan. Debtors with sufficient disposable income to pay some of their debts must file under Chapter 13. A debtor proposes a bankruptcy plan for approval. The plan reorganizes their debts into an affordable monthly payment. Some debts, such as mortgage payments, may be paid outside of the bankruptcy plan. A Chapter 13 plan typically lasts 60 months, but some debtors may qualify for a 36-month plan.
The Impact on Real Estate When Filing Chapter 7 vs. Chapter 13
Debtors protect equity in certain assets by claiming bankruptcy exemptions. Florida’s homestead exemption is unlimited if you meet certain requirements:
- You have owned the home for at least 1,215 days before filing for bankruptcy
- The property is no larger than a half-acre if it is in a municipality or 160 acres if it is outside of a municipality
- The property is titled in your name
Therefore, most people who file Chapter 7 or Chapter 13 do not need to worry about the equity in their homes. However, if you own other real estate, the Chapter 7 trustee could sell the real estate if it has non-exempt equity. For example, you own a beach house with $50,000 in non-exempt equity. The Chapter 7 trustee can sell the beach house and use the money to pay your creditors.
Chapter 13 handles non-exempt real estate differently. Instead of losing the property, you can increase your monthly bankruptcy payment to cover the equity in the real estate. You would pay your creditors the non-exempt equity over the 60-month period.
Filing Chapter 7 vs. Chapter 13 to Save Your Home From Foreclosure
If you are behind on mortgage payments, filing bankruptcy stops a foreclosure proceeding. However, Chapter 7 does not provide a way to catch up on your payments over time. Therefore, if you want to keep your home, you need to file a Chapter 13 bankruptcy.
In a Chapter 13 plan, you can include your past-due mortgage payments. You can keep the house as long as you pay your Chapter 13 payment and keep your future mortgage payments current.
Call Now for a Consultation With a Florida Bankruptcy Attorney
Filing for bankruptcy can help you get rid of debts you cannot pay. It can also help you save your home from foreclosure. Call The Law Offices of Jeffrey A. Herzog, P.A., to discuss your situation with an experienced Florida bankruptcy attorney.