That's an introduction to what may be possible for you. If this sounds like something you might be interested in, you owe it to yourself to get a free consultation with a qualified bankruptcy attorney in your area.

I'm going to make this article a short one on this Easter Sunday, 2012, and sign off with a few links that will provide more information if you're interested.

Bankruptcy sounds scary. Just what is involved in a bankruptcy?
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First, filing any type of bankruptcy will stop a pending foreclosure but the question then becomes "For how long?".

In a Chapter 7 bankruptcy, you'd have to pay all of the back (unpaid) mortgage payments quickly or the lender could get the court to allow them to foreclose. If you could pay all the back mortgage payments you wouldn't be in this situation in the first place, so Chapter 7 isn't a solution.

In a Chapter 13 bankruptcy you're allowed to pay the back mortgage payments over the life of a monthly payment plan of three to five years. That makes Chapter 13 bankruptcy the one to look at.

If you can afford to pay off those back mortgage payments monthly as described above, make all your current mortgage payments as they come due, and pay some additional amount monthly into the Chapter 13 payment plan, then you can save your house from foreclosure.

There's one more "helper" available in a Chapter 13 bankruptcy. If your house is not worth more than the amount owed on the first mortgage, then you may be able to remove ("strip") the lien on your house from the second mortgage loan in a Chapter 13, turning that second mortgage debt into an unsecured debt (like credit card debt) that gets paid (possibly only in part) along with other unsecured debts in the Chapter 13 payment plan. That would make one less monthly payment to make to keep your home.

How much would you have to pay each month into the Chapter 13 plan? That's beyond the scope of this article and depends on your entire financial situation. This is definitely one of those "don't try this at home" things. You need to discuss your situation with a qualified bankruptcy attorney in your area.

Will they take my house if I file bankruptcy? (Part 1)
Will they take my house if I file bankruptcy? (Part 2)

As we discussed in Part 1, if your equity in your home is more than the exemption amount for your situation, you may not be able to keep your home in a Chapter 7 bankruptcy. You'll need to consider a Chapter 13.

If you're current on your mortgage payments as in the original question above, a Chapter 13 bankruptcy allows you to keep you house as long as you can show the court that you can afford to do the following things. Then of course you have to actually do those things.

1. Pay into the Chapter 13 monthly payment plan, over three or five years, enough to:

– Pay your "preferred creditors" what you owe (for example, most back taxes).
– Pay your unsecured creditors (credit cards, etc.) at least as much as you would have to pay them in a Chapter 7 bankruptcy.

2. Pay into the Chapter 13 monthly payment plan all of your disposable income (net income less expenses) as shown in your bankruptcy filing. This amount is not in addition to 1 above, but is another requirement for the payment amount that has to be satisfied.

3. Continue to be current on your mortgage payments.

After the end of the payment plan, your unsecured debts will be discharged (eliminated) regardless of how much you're paid on them through the payment plan. And you got to keep your house!

Needless to say, there's more to a Chapter 13 bankruptcy than the quick look here, but this should give you a good idea of whether a Chapter 13 might be valuable for you.

Will they take my house if I file bankruptcy? (Part 1)
Will they take my house if I file bankruptcy? (Part 3)

First, I explain that although a creditor could sue them and get a court judgment, the creditor wouldn't be able to collect anything from them on that judgment. Which means that the usual reason for filing bankruptcy, to prevent creditors from taking their money and other assets, doesn't exist. They are what is often called "judgment proof" but is more accurately "collection proof". Is that the end of the conversation? Not really. There may be other considerations regarding their situation that aren't obvious at first glance. Here are some examples:

• Estate planning – A man (or woman, of course) has $150,000 equity in a home, his only income is Social Security benefits, and he has not many other assets. That home equity is fully protected from creditors by California's homestead exemption ($175,000 if you're 65 or older). He also owes $140,000 in credit card debt. A Chapter 7 bankruptcy would discharge (get rid of) all those debts, but why bother since those creditors couldn't collect anything from him? Consider this … If he has someone he wants to leave that house to when he dies, without a prior bankruptcy the house would be sold from his probate estate after he dies and his creditors would be paid from that money, leaving next to nothing to pass on. If he did a Chapter 7 bankruptcy before his death, there would be no debts at the time he died so the house would pass on to whomever he specified in his will.

• Late-life planning – Same situation as above but not necessarily with the wish to leave the home to someone. What if this person later needed to reach that equity in the house to pay for his living expenses, either by selling the house or by taking out a reverse mortgage? That $140,000 of debt might be a serious obstacle to doing that. With that debt eliminated by bankruptcy, those options would be available.

• The dangers of being collection-proof – Yes, creditors may not be able to collect anything from you, but there can be complications. When a creditor gets a court judgment and the Sheriff’s department is directed to levy on a bank account, they won’t know whether or not the account has exempt Social Security benefits and the bank might not know that either. The money could be tied up for a long time if the person doesn't know what action to take to get the levy released. You still have to figure out how to get that money back (and probably pay an attorney to do it).

• Stopping the aggravation – Aggressive debt collectors can seriously bother someone for a long time. Bankruptcy stops that and provides peace of mind.

Only the particular person knows if it's worth the effort and expense of a bankruptcy in his or her situation, but the possible consequences of both ways, filing bankruptcy or not, should be fully considered.

Several companies are offering credit cards with all-but-hidden provisions that require you to pay all or part of an old debt, old enough that you're protected by the statute of limitations from being sued for it. These debt accounts are so old that the collection agencies involved probably bought them for pennies on the dollar and have now teamed up with a credit card issuer to get you to pay them, giving them a large profit. What's true about this?

• By agreeing to pay even a part of that old debt, you cause the period for the statute of limitations to start all over again. In California, the statute of limitations for credit card debt is four years (four years from the last action on the debt). If you sign that credit card application agreement, that period will start to run all over again, meaning that you can be sued for that debt just because you agreed to pay part of it.

• Paying an old debt, in part or in full, does not remove it from your credit report.

• Many of these cards also come with very high fees that are all but hidden.

So, as always, the rule is not to sign any credit agreement before reading it thoroughly and understanding the provisions.

This holiday time is significant in multiple spiritual practices and not in others. But for many, regardless of religious or spiritual persuasion, it is also a time of coming together for family and friends. That makes it a time for remembering what is really important, and also for remembering that the situations we consider to be problems are transient and are able to be handled in one way or another. In some spiritual practices, this season is a time of hope, of celebrating a new beginning. I don't think it's a stretch to say that, often, situations we face as problems turn out later to be the platforms for new beginnings in our lives.

Here's to new beginnings in 2012!

In General

A Chapter 7 bankruptcy will eliminate ("discharge") your unsecured debts, meaning those debts (like credit card debts) that are not secured by your property (like your car loan or home mortgage). It will do that quickly, normally in 3-4 months after filing. It's the one most people want.

What would you have to give up in a Chapter 7 bankruptcy?

Often, nothing or not much. You get to keep all of your assets (money and other things you own) that are "exempt" under the exemption laws of your state. In California, if you don't have equity in your home (the amount it's worth less the amount you owe), you get to exempt from creditors $23,250 worth of anything you own, including cash and bank accounts. In addition there are specific exemptions such as $3,525 of the equity in your car and all of your household goods as long as none of them are worth more than $550 each (at a garage sale, on craigslist, ebay, etc). There are other specific exemptions.

Do you qualify for a Chapter 7 bankruptcy?

If you don't make much money, you probably qualify. See the links at the end for more information.

What is the process?

• You give your bankruptcy attorney the information he or she requests. You do the required credit counseling (easy and low cost). Your attorney prepares your filing papers and you review and sign them. Your attorney files your Chapter 7 case with the court. You do the required financial management course (easy and low cost).

• Approximately one month after filing, you and your attorney attend a "Creditors Meeting" with the bankruptcy trustee assigned to your case. It's usually a short meeting with no creditors showing up.

• You wait another 2-3 months and you get your discharge of debts. You now have your Fresh Start!

That sounds simple. Is there more to it than that?

Of course. There's a lot of work involved for both you and your attorney, but the outline above is the usual course of a Chapter 7 bankruptcy case.

Additional information

More detailed information about bankruptcy and the different chapters under which you can file. http://ca-bankruptcylaw.com/bankruptcy-info

How do I work? http://ca-bankruptcylaw.com/how-do-i-work