Many people file bankruptcy almost exclusively to protect their homes. Legally, banks can start foreclosure proceedings after just one missed payment. Once the foreclosure wheels begin turning, it is almost impossible to stop them. Banks normally accelerate the loans and stop accepting installment payments. So, each month, the financial hole gets deeper and deeper.

Technically, civil judges have the power to grant injunctions and stop foreclosure. But they usually only step in if there is clear evidence of mortgage fraud or something similar. In most cases, there is no fraud, or at least none that can convince a judge to act. Most homeowners fall behind on payments due to job loss or another event that is beyond their control.

Almost regardless of the facts, a Georgia bankruptcy lawyer can file a petition and stop foreclosure in its tracks. If the foreclosure sale is going down within the next few days, an attorney can file an emergency petition. Furthermore, a Georgia bankruptcy lawyer can show debtors how to take advantage of some obscure bankruptcy loopholes. These loopholes could save your family thousands of dollars.

Chapter 7 or Chapter 13: Understanding the Difference

Debtors typically file one of two kinds of bankruptcy. Usually, they file under either Chapter 7 or Chapter 13. Regardless of the bankruptcy you file, property covered by an exemption is covered. Non-exempt property is treated differently under each kind of bankruptcy.

The first step to determining if you can protect your home when filing bankruptcy is to determine if you can protect all of the equity in your home. In either form of bankruptcy, you use exemptions to protect your assets.

In Chapter 7 bankruptcy filings, the trustee will sell all non-exempt property, and the proceeds are distributed to your creditors. In Chapter 13, the things you own remain yours. You pay the value of the non-exempt property in your repayment plan or out of disposable income. These approaches are designed to ensure that creditors receive the same amount of money no matter which form of bankruptcy you file.

In Chapter 7 bankruptcy, there is no three-to-five-year repayment plan to worry about, so many people prefer this filing as it’s simpler and you are on the road to being financially stable quicker. You can keep your house as long as you’re current on your house payments, protect your equity with an exemption, and continue making future payments. If you have a lot of equity in your home, it could be difficult to protect the house, and filing Chapter 7 won’t help you catch up on any past due payment amount.

Chapter 13, on the other hand, provides a way for you to get caught up on mortgage payments. You can treat missed mortgage payments as a separate debt that can be added to the payment plan. Of course, catching up on back payments will only work if you can make both your regular payments and make the payment on your plan payments.

After filing Chapter 13, a mortgage holder can’t foreclose if you’re paying house payments and plan payments on time. You must also keep to your mortgage terms like keeping homeowners insurance in effect.

The Automatic Stay

The Automatic Stay instantly stops foreclosure proceedings, acceleration notices, and collection efforts. These stop instantly, no matter how behind you are on your payments. Technically, all communications between debtors and creditors are prohibited by the Automatic Stay. Many creditors discontinue ACH payment arrangements and sending statements.

The debtor is still obligated to make payments even when a stay is in place. If the homeowner misses payments, the lender can request permission to bypass the Stay. The section of the code that pertains to the Stay applies to other adverse actions by creditors. These include wage garnishment, bank account levies, repossession, and eviction.

Federal Versus State Exemptions

With bankruptcy, there are both state and federal exemptions. Some states, like Georgia, don’t allow the use of federal exemptions when filing bankruptcy. That means you will only be allowed to use Georgia exemptions when filing. An exception to the exemption rule in Georgia is the ability to use federal nonbankruptcy exemptions to protect disability benefits and certain retirement accounts.

Before you can use the Georgia bankruptcy exemptions, you have to reside in Georgia for a minimum of 730 days—two years—when you file bankruptcy. You can file bankruptcy after living in the state for 180 days, but you’ll have to use the exemptions from the state you lived in previously if you haven’t been in Georgia the two full years. This rule was implemented because some filers would move to use more favorable bankruptcy exemptions.

If you moved a lot and didn’t have a particular state to call home in the two years before filing bankruptcy, there are rules for that too. In that specific case, you’d use exemptions from the state you were living in the 180 days before the two years immediately before you filed.

The Homestead Exemption

The Homestead Exemption in Georgia allows you to keep your home when you file bankruptcy as long as you don’t have excessive equity. Using this exemption keeps the property safe from both the bankruptcy trustee and other creditors. This is only a valid exemption if you or your dependent uses the property as a primary residence.

Bankruptcy exemptions protect your assets from creditors. In Georgia, the home equity exemption for a married couple is $43,000. That’s if both people have an interest in the property. Homestead Exemption for one person is $21,500 in Georgia.

If you have lived in your house for less than ten years, you probably have little equity. Mortgage loans are amortized. As a result, borrowers pay mostly prepaid interest for the first half of the loan. The bank takes its money before it allows borrowers to build equity.

If you have lived in your house for more than ten years, the exemption limit could be a problem. But not to worry. Some legal remedies are available.

One option is a tenancy of the entirety. Creditors cannot seize one person’s property to pay another person’s debts. Assume Sonny and Cher live in the same home, but only Sonny’s name is on the note. Sonny loses his job, falls behind on payments, and the house goes into foreclosure. The mortgage debt is Sonny’s alone. And, the bank could not seize Cher’s house to pay Sonny’s debt.

The “best interests of creditors” rule is another option. Assume Sonny and Cher’s home is worth $200,000. They have $100,000 in equity and still owe $100,000. Further assume the house needs a $50,000 foundation repair job. Selling the house would net, at best, $7,000 for creditors (200k sales price minus 100k loan balance minus 50k repair minus 43k home equity exemption). That’s not including brokerage fees, closing costs, and other expenses. Arguably, seizing the home would not be in the best interests of the creditors. They would realize little or no money off the seizure and sale.

On a related note, in a Chapter 13, the protected repayment period lasts up to five years. Homeowners make income-based catch-up payments to erase mortgage and other secured debt delinquency. The Automatic Stay remains in force during this period. Moneylenders cannot take adverse action against debtors as long as their monthly debt consolidation payments remain current.

Georgia Bankruptcy Attorneys and Advanced Options

Cramming and stripping sound like things you do not allow at the family dinner table. But a Georgia bankruptcy lawyer can use these things to make your house more affordable in the long run. Generally, cramming and/or stripping are available if the house’s fair market value has declined.

Here’s how cramming works. Assume Sonny and Cher’s $100,000 condominium is now worth $80,000. They have already paid $60,000. If they pay $20,000 before the protected repayment period ends, they could own the property free and clear. The bank must forgive the remaining $20,000.

As for stripping, assume Sonny and Cher bought a $500,000 house with an 80/20 mortgage. The house is now worth $400,000. As a result, the value is not high enough to secure both the $400,000 senior lien and $100,000 junior lien. The junior mortgage becomes an unsecured debt, which is dischargeable in bankruptcy. That declaration and discharge could save Sonny and Cher hundreds of dollars a month.

Cramming and stripping are quite complex and not always available. Nevertheless, a Georgia bankruptcy attorney should always evaluate your case and determine if these things are legitimate options.

Call a Reliable Georgia Bankruptcy Lawyer Immediately

Deciding to declare bankruptcy can be a difficult decision. When you find yourself facing the loss of your home to foreclosure, it can be a confusing time, and an attorney can help you navigate the complexities of avoiding foreclosure and filing bankruptcy. If you’re debating whether to declare bankruptcy or not, an attorney can help you choose the right option for you.

Bankruptcy helps you keep your house and, in many cases, lowers the payments. For a free consultation with an experienced Georgia bankruptcy attorney, contact Morgan & Morgan Attorneys at Law P.C. at (706) 843-2905. We routinely handle matters in Clarke County and nearby jurisdictions.