Homeowner in Pennsylvania Has Bankruptcy Questions

English: Part of Title 11 of the United States...

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The Questions

A homeowner in Pennsylvania shared his personal bankruptcy story in February of 2012 on a bankruptcy forum website. The homeowner has been struggling to make ends meet despite running a construction job on the side to supplement his regular job. Here are three questions the man wants answers to after sharing his financial history:

  1. Since all my money is tied up in expenses, would I qualify to file a Chapter 13?

  2. If I file a Chapter 13, should I buy a newer car for reliability during the five year plan?

  3. Will filing bankruptcy make my current credit score of 540 go down much further, preventing me from getting a new car?

The Financial Situation of the Homeowner

The homeowner stated in his bankruptcy forum blog that he needed to keep his home. While it is true and advantage of filing a Chapter 13 will guarantee you to be able to keep your home, there is the possibility this particular homeowner would be allowed to keep his home anyway if he qualifies to file a Chapter 7 instead.

He owes $178,000 on his primary mortgage on a house currently valued at around $200,000. He owes $43,000 on a second mortgage. He is currently 3 months behind on the primary and one month on the second mortgage. Without filing some type of bankruptcy, it is likely one or the other mortgage company will foreclose on the property for defaulting on their loans.

Since the homeowner lives in Pennsylvania, which allows bankruptcy filers to chose between state and federal exemptions, the homeowner can chose the federal homestead exemption of $21,625 to possibly exempt his home from being liquidated in a Chapter 7 bankruptcy. If he files a Chapter 7, he would still have to get caught up on both his mortgage payments in order to keep the home. This strategy should not be tried without discussing it with an experienced bankruptcy attorney first.

The man’s current take home pay after taxes is approximately $4,350 per month.

Total expenses as described by the homeowner, not including unsecured debt, is approximately $5,225 per month. Obviously, the man appears not to have any disposable monthly income which would possibly qualify him to file a Chapter 7.

His unsecured debt is currently around $24,000.

Possible Answers to the Homeowner Questions

Before the homeowner makes in decisions on what type of bankruptcy he should file in his particular situation, it is highly recommended he hire a bankruptcy lawyer to help him decide what it best for him.

Here are some of his possible answers to the questions he raised:

  1. Yes, the man would qualify for filing a Chapter 13 as long as his business debts have been made as a sole proprietor.

  2. Whether or not he should buy a new car would depend on the monthly cost and if he could afford the payments, but it is likely he could buy the car before filing a Chapter 13 if he and his attorney think it is necessary.

  3. Yes, you should get an initial drop of around 20 to 50 points if your score is around 500. Credit scores rarely drop too far below 500 if you have any credit history at all. By the time the homeowner reached 540, his credit history had already been factored into the score.

Bankruptcy laws can be complicated, and it is wise to consult with an experienced bankruptcy attorney before filing.

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