At Behm Law Group, Ltd., we’ve worked with clients in all kinds of situations filing for Chapter 7, 12, and 13 bankruptcies. The process of Chapter 7 is called “liquidation bankruptcy”. Essentially, people who file for chapter 7 bankruptcy relief have their non-exempt properties sold and the value is distributed to their creditors. The debts tied to or secured by vehicles and houses and other assets are discharged. However, in such cases, the properties tied to or secured by those debts are generally not retained by the person filing for bankruptcy relief. Unsecured debts (credit card debt and medical bills, for example) are also discharged. Filers can also use bankruptcy exemptions to protect the properties they want to keep from liquidation. If you are considering filing for Chapter 7 bankruptcy in Jackson, MN or the surrounding areas, Behm attorneys can protect and guide you throughout the process.
Chapter 7 Bankruptcy
In addition to its impact on the filer’s credit, one of the main reasons people balk at filing a bankruptcy case to resolve their debt is the fear of losing property. The truth is that most filers lose very little property if they qualify for a Chapter 7 bankruptcy in the first place. Losing property in chapter 7 bankruptcy is generally not something that happens in every case. In fact, in most cases, all people lose are their debts. The bankruptcy exemptions that people can claim to protect their important assets such as homes, cars, appliances, and tools of their trade, and other things are quite generous.
Exemptions
It is important to note, however, that bankruptcy exemptions only protect equity that someone has in an asset or property. Bankruptcy exemptions do not eliminate secured mortgages or validly perfected vehicle liens. There may be an asset that you have that is secured by or subject to a mortgage or lien that you want to continue working with the creditor to retain. You may have equity or value in that asset that exceeds the debt against it. In chapter 7 bankruptcy, people retain such debts by signing a reaffirmation agreement. A reaffirmation agreement is a legal document that you and the subject creditor sign that recites and memorializes the terms and conditions of the original mortgage loan or vehicle loan that you negotiated with the subject creditor. It is entirely voluntary on your part and on the creditor’s part. No one can force you to do a reaffirmation agreement.
Presume, for instance, that you own a house that is worth $300,000. Presume further that you owe your mortgage lender $200,000 and that you, therefore, have $100,000 worth of equity or value in the house. You would protect the $100,000 equity or value with your homestead exemption. The exemption you claim, however, does not make the $200,000 mortgage go away. If you want to retain the house and the $100,000 equity or value that you have in the house, you must still pay the underlying mortgage. To do this, you and your attorney would sign a reaffirmation agreement concerning the $200,000 mortgage with the subject creditor. After your bankruptcy concluded, that mortgage debt would survive and your relationship with the creditor would essentially be the same as it was before you filed bankruptcy. As long as you made your mortgage payments after the conclusion of your case, the creditor would continue sending you monthly billing statements and it would continue allowing you online account privileges. The creditor also would continue reporting your timely mortgage payments to the three big credit reporting agencies: Equifax, Experian and Transunion. This would help rehabilitate and restore your credit profile.
Court Approval
Once you’ve negotiated the reaffirmation with your creditor, the bankruptcy court must approve it. To approve a reaffirmation agreement the court looks at various factors such as whether the terms are fair to all involved parties. The court also looks at the value of your property, your income, changes to your expenses, the monthly debt payment requirement, your on-time payment history, and whether you’re current with your mortgage payments. In most cases, the bankruptcy court will approve a reaffirmation agreement unless the terms are obviously unfair to one of the parties involved.
While most reaffirmation agreements are approved by the bankruptcy court the reaffirmation process is not routine and it can become complicated, both during creditor negotiations and with respect to the review by the court. It is essential that you have an experienced lawyer assist you with a reaffirmation agreement in your Chapter 7 bankruptcy in Jackson, MN or the neighboring regions. Contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com to get started with expert guidance in your case.
