Can you save your home in bankruptcy?

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Dear Bankruptcy Adviser,
I am presently contemplating filing for bankruptcy because I have less income to keep up with my debts. I had signed up for a credit counseling program to pay off my credit cards, but the payment is now becoming difficult to make. One credit card company already has gotten a judgment and has placed a lien on my home. I am also falling behind on my mortgage.

My question is if I file bankruptcy, would this remove the lien? And if I continue having difficulties with the mortgage to the point of foreclosure, would the bankruptcy prevent the foreclosure? Will my mortgage payment remain the same if I file bankruptcy?
— Dawn

Dear Dawn,
It appears you are on the brink of bankruptcy. You have tried to consolidate your bills with the credit counseling agency but are unable to continue that payment. And one creditor has already sued you and obtained a judgment. As I see it, you have two issues.

First, you’d like to know how to remove a lien on your home. It is possible to remove a lien from the title to your house when you file for bankruptcy, but it depends on the amount of equity in your home.

If your home has no equity, that’s no problem. You can remove the lien through a process that must be handled after your bankruptcy has been filed but before your case is closed.

If your house has equity, you are able to exempt some of the equity. Each state allows you some protection for your home against creditors. In California, a single person with no children can now exempt up to $100,000 of the equity in their home, keep the home and still be eligible for Chapter 7 bankruptcy protection. You would have to follow the same process as if you had no equity, but you can successfully remove a lien against your property.

Creditors created the liens against the property after they sued you and obtained a judgment. But you should be able to eliminate the judgments against you with the filing of the bankruptcy. However, it is a waste of money to file bankruptcy and to pay to have the liens removed if ultimately you lose the property in foreclosure.

To avoid that, you should seek a loan modification. Once you get your lender to approve a mortgage modification, that’s when to file for bankruptcy and remove the liens.

Your second question involves your difficulty in paying your mortgage loan. My advice is to contact your lender immediately to seek assistance. Hopefully, you are eligible for a loan modification. While the process is daunting and full of great frustration, you might be able to lower the payment on your mortgage.

You cannot force the lender to modify your mortgage while inside bankruptcy. Neither the court nor the judge has the authority to reduce or modify the terms of your loan. The lender holds all the power and, unfortunately, most lenders are not modifying home loans.

If you are on the brink of losing your home and you cannot afford the payment, the bankruptcy can only delay the foreclosure process. You will eliminate your liability on your credit cards and the mortgage but will ultimately lose the property to foreclosure.

I wish there were alternatives, but very few exist when you are unable to afford the mortgage payments.

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