To learn more about Chapter 7 bankruptcy, see Chapter 7 Bankruptcy section. Filing for Chapter 13 bankruptcy can be a good way to save your home from foreclosure. Chapter 13 bankruptcy lets you pay off a mortgage "arrearage" late, unpaid payments over the length of a repayment plan approved by the court -- usually between three and five years.
For this option to work, you'll need enough income to at least meet your current mortgage payment at the same time you're paying off the arrearage. To learn more about saving your home through Chapter 13 bankruptcy, see Your Home in Chapter 13 Bankruptcy. In Chapter 7 bankruptcy, if you have sufficient equity in the home, the bankruptcy trustee may sell your home to repay unsecured creditors.
Given the state of the real estate market, this rarely happens these days. But if you're behind on your mortgage payments, Chapter 7 doesn't provide a way for you to catch up, and the lender will likely get permission from the bankruptcy judge to go ahead with a foreclosure. To learn what happens to your home in Chapter 7 bankruptcy -- including how to determine if you have non-exempt equity -- see Your Home in Chapter 7 Bankruptcy. If your only goal of bankruptcy is to save your home, be sure to consider other alternatives first.
You may be able to negotiate with your lender to deal with arrearages or get government help to modify your loan terms. To learn more about ways to save your home, see How to Avoid Foreclosure. If you think you'll incur significant debts soon, it might make sense to wait to file for Chapter 7 bankruptcy.
Although your current debts with some exceptions will be discharged in your bankruptcy, debts incurred after you file for bankruptcy won't be. Because you can't file for bankruptcy for eight years after the filing date in a previous Chapter 7 discharge, you'll be on the hook for those debts for a long time.
To learn about other situations in which it makes sense to delay your bankruptcy filing, see Should I File Bankruptcy Now or Wait? Yes, bankruptcy's automatic stay requires most creditors and debt collectors to stop all collection efforts against you until the bankruptcy is over.
But if all you want to do is stop debt collectors from contacting you, there is an alternate route. Under the Fair Debt Collection Practices Act, you can request that debt collectors stop contacting you.
Send a letter stating that you want the collection agency to cease all communications with you. All agency employees are then prohibited from contacting you -- except to tell you that collection efforts have ended or that the collection agency or original creditor intends to sue you or take advantage of some other legal remedy. Keep in mind that this remedy only applies to debt collectors.
Creditors can continue to contact you except in some states that extend this remedy to the original creditor as well as collection agencies. Most states have exemptions that cover a certain amount of your personal property. Some have specific exemptions for items such as jewelry, and may even have a "wild card" exemption that can be used for any type of property. The amount of these exemptions depends on your state.
The Chapter 7 bankruptcy trustee sells nonexempt assets and uses the sales proceeds to repay your unsecured debt—like credit card balances, medical bills, and personal loans—that isn't secured by collateral. Bankruptcy exemptions don't cover specific luxury items, such as fur coats and hobby equipment known as "nonexempt" property.
So if you own an expensive artwork, it's unlikely that you'd find an exemption to cover it. Another option? File for Chapter 13 bankruptcy. Debtors can keep all of their property in a Chapter 13 case. In Chapter 7, the Chapter 7 trustee cannot take any exempt property. However, if you have nonexempt property, the trustee can sell it and use the proceeds to repay your unsecured creditors. Sometimes the trustee decides that it's not worth seizing and selling your nonexempt property.
In that case, the trustee may "abandon" the property. Secured property is "upside-down" when the value of the loan secured by the property is more than the market value of the property. Car owners are often upside-down on their car loans. The debtor is now upside-down on the car loan.
In the example above, the trustee will likely abandon the car. Once the secured creditor loan holder on the vehicle is paid, there will be no additional funds with which the trustee can pay unsecured creditors.
Therefore, it is not worth the trustee's time or expense to liquidate that car. If you don't have a significant amount of nonexempt equity in the property, it might not be worthwhile for the trustee to sell it. From the sale proceeds, the trustee must pay any secured creditor, pay you the amount of your exemption if any , and deduct the costs of sale and the trustee's commission.
If, after all of these deductions, there is nothing or little left over to pay creditors, the trustee will likely abandon the property. After abandonment, the property is released from the bankruptcy estate. If a loan does not encumber the property, then you get to keep it. For example, if the trustee abandons jewelry or household furniture that you own free and clear, you keep the items.
If the property is encumbered by a loan for example, a car that you have financed , you have several options available to you. Learn more about keeping a car in bankruptcy. In this scenario, the trustee would abandon the car, and you would be able to keep it.
If your nonexempt property is worth too much for the trustee to let you keep it, you can offer to repurchase the asset by paying the nonexempt value. Usually, you can negotiate a lower amount that takes into account the fact that the trustee won't have to incur additional storage and sale costs. You can use the income earned after your bankruptcy filing, or sell exempt property and use the proceeds to fund the purchase.
Or, some filers pay for the property with a loan from a friend or family member. Most debtors in Chapter 7 bankruptcy don't have enough money to buy back a nonexempt asset from the trustee. If you want to keep a specific nonexempt asset, you can offer to give the trustee one of your other exempt assets in exchange. In general, whether the trustee will agree to accept a different asset in exchange for your nonexempt property will depend on the value of the asset and the cost and labor associated with selling each type of property.
Learn more about the basics of property exemptions in bankruptcy and when a trustee might object to your exemptions. It's tempting to engage in a certain amount of exemption planning before filing for bankruptcy, including converting nonexempt property property you can't protect into exempt assets you can keep in a bankruptcy case.
We Educate. We Give Hope. Client Login We Help. Search for: Search Button. Know what to expect when declaring bankruptcy in Canada. By Jordan Evans. Quebec No amount of equity will make your home exempt from bankruptcy. Let Us Help You. Related Articles. Steps for Bankruptcy There are 10 main steps in the bankruptcy process.
What is Insolvency? Insolvency in Canada is a legal last resort when you can no longer repay what you owe.
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