Bankruptcy is often a last result for California homeowners strapped under heaps of debt. Owning a home takes a Herculean effort for many owners as they strive to collect the money for a down payment, insurance and other related costs. However, life changes, and you end up crushed under debt that can put that hard-earned home at risk.
The two most common bankruptcies filed by consumers are Chapter 7 and Chapter 13, but there are key differences in how they affect your debt and assets. Chapter 7 allows you to wipe out your debts, but it often means selling all your assets, including your home. Chapter 13 is a debt restructuring form of bankruptcy that can let you catch back up on those mortgage payments and retain your home.
There are a few exceptions to Chapter 7 regarding your home. There are some non-exempt properties not subject to sale, but not too many. Most Chapter 7 bankruptcies have the advantage of wiping out the majority of your existing debts but can still leave you facing foreclosure on your home.
To keep your home, Chapter 13 may be a better fit. The restructuring plan helps you put your payments back into something you can reasonably afford. Instead of feeling stretched thin, the payments are something you can work into your current budget. However, the debt is not wiped out completely like Chapter 7. Many lenders offer foreclosure protection as long as you meet the new payments agreed upon in the bankruptcy.
Sometimes, debtors merely need some breathing room from crushing debt, and Chapter 13 can provide that. Each debtor has unique needs that can make it difficult to choose the best route. In addition to bankruptcy, debt consolidation and contacting your creditors individually may help. Not all debtors qualify for Chapter 7 due to income restrictions. Evaluate your debt and assets to determine what is best for your situation.