If you are in the middle of financial problems, it's understandable to fear that you will lose your property that you still have a mortgage on. Declaring bankruptcy can help save your property instead of giving it back to the bank. Here is what you need to know about Chapter 11 bankruptcy and how it relates to real estate.
How Is Using Chapter 11 Unique From Other Forms of Bankruptcy?
There are several characteristics of Chapter 11 that will make it different from the other bankruptcy options available to you. The most important one is that you'll be granted an automatic stay while filing your Chapter 11 petition. This means that creditors will not be able to go after you in terms of wage garnishment, bank levies, or repossessions while your bankruptcy is being processed. It's your first step in getting your finances organized.
Chapter 11 typically gives you 4 months to get everything done, but a judge can extend it to as long as 18 months as well. This time frame is important to keep in mind, since you'll be using this time period to get your finances organized and avoid losing your property.
You'll also be able to discharge unsecured debts, and put that money towards paying off your mortgage.
How Does Chapter 11 Work?
You will work with your mortgage lender to come up with an alternate solution that still allows you to repay the loan. It can include extending the loan period, or decreasing how much interest you pay. Believe it or not, your mortgage lender does not want you to default on your loan. They would rather work with you in finding a way for you to continue making payments.
Another option involves reducing the principal that you owe. This can happen in a situation where the property is worth less than what you still owe. For example, if a $200,000 home drops in value by $75,000 to $125,000, a judge can decide to reduce your principal amount by $75,000. This is because if the property is truly worth less than what you still owe, the bank would get the same amount if they repossessed the property and sold it themselves. By having you to continue paying the loan at a lower amount, they will still receive the interest.
If you have more questions about how Chapter 11 bankruptcy can help prevent the loss of your property, speak with a bankruptcy lawyer like Jeffrey S Arnold Attorney At Law P.C. They will help walk you through the entire process, and help negotiate with your mortgage lender for you.