Will I lose my house?

[davester]

Hi, I reside in Alabama, I'm going through a difficult time financially. I was laid off several years ago and I am still unemployed. I am not at the point of filing bankruptcy yet. I might have to do it in the future if I don't find a job. I want to know my options before I get to that point.

I have roughly about 22k in unsecured credit card debt. That is all of the debt I have no other loans of any kind. My house is paid for free and clear. The city appraised my house at 23k. Realistically the house is worth far less because it is in need a a lot of repairs. My guess is the house is worth only 10k at most, mainly because of the repairs it needs and the neighborhood is a high crime area,

Here are my questions: If I file bankruptcy will I lose my house? What would be the best route to take, Chapter 7, Chapter 13, or debt consolidation? I don't want to be homeless.

Thank you.

[justbroke]

Alabama has got to the be worse place to own a home, when it comes to Bankruptcy and Creditors. The exemption is only $5K in Alabama, so your home would be subject to sale by the U.S. Trustee, err, Bankruptcy Administrator. (FYI, Alabama and North Carolina do not participate in the United States Trustee Program (USTP) so they use their own bankruptcy administrators which are basically private practice attorneys.)

As for going into a Chapter 13, you need to have "regular income", and I don't read anywhere in your post where you state that you have a job or regular income. You only state that you've been laid off for years.

You have serious issues, that maybe only a Bankruptcy and losing the home may solve. My primary concern for you is that there is not much protection for your home.

How have you been living? Just off credit cards? Do you have a retirement fund that you tapped into or something?

I don't have any feel good answers for you. You are in a tough spot. A Chapter 13 could be your best bet, but even then, you'd have to pay your equity (let's just say it's $20K) less your exemption of $5K over the 36 months you'd be in a plan. That alone is over $400/month. Then you may have to commit some of your earnings to the plan as well (known as your disposable monthly income). But this is all moot since you ahve no regular income.

[davester]

All of this comes as a big surprise to me. I never thought that a house could be sold by creditors for an unsecured debt.

I read somewhere that if someones doesn't pay their credit card payments and does not file bankruptcy that creditors could sue the home owner and a lien would be put on the house but the creditors could not remove the home owners from their home. Is that true?

[justbroke]

All of this comes as a big surprise to me. I never thought that a house could be sold by creditors for an unsecured debt.

I read somewhere that if someones doesn't pay their credit card payments and does not file bankruptcy that creditors could sue the home owner and a lien would be put on the house but the creditors could not remove the home owners from their home. Is that true?

Generally, that is true because there are homestead protections in many States which protect your homestead from ever being taken (foreclosed upon) by a creditor. Even in homestead States, there are limits to how much is protected from creditors. For example, Massachusetts has a $300K homestead exemption from unsecured creditors under State non-bankruptcy law. However, it's $100K under Bankruptcy law.

However, most creditors wouldn't foreclose on your home, because they'd owe money! Most homes are encumbered with debt from one or more mortgages. These days, most homes have little to no equity, and many (most) are underwater (worth less than what's owed on them). This is the only thing stopping unsecured creditors, really.

It's usually not worth it for unsecured creditors to go for personal property. They will generally just place a lien (after getting a judgment and recording it per local guidelines) on your property.