Finally, why the hell would they NOT take their homes? That's preposterous! So I can get a ridiculous loan, buy a home, and then declare bankruptcy and keep it? That is utterly ubsurd. I don't know why everyone in this damn country considers home ownership so sacred.
No, you can't. Your house and your car (assuming you owe money on them to a bank) are examples of secured loans. The creditor retains rights in the collateral. There are essentially two basic parts to secured debt. The note and the lien. Chapter 7 bankruptcy discharges your obligation to pay under the note, but it does not impair the lien. So you can't just buy a million dollar house with minimal money down and then declare bankruptcy and keep the house free and clear. The bank still retains its lien. If you file a Chapter 7 bankruptcy and are behind on your mortgage or car payments, you are going to lose your house and/or your car. You must be current on your secured obligations if you intend to retain them through a Chapter 7. You continue making payments on them as usual through the bankruptcy process. In my state you can choose to reaffirm your mortgage (which makes you liable under the note again) or continue to make payments without reaffirming. A Chapter 7 by itself does not alter or change your payments or your payment schedule, and if you stop making payments, the bank will foreclose/repossess your collateral once the automatic stay is lifted (this is outside of any discussion about equity and state/federal exemptions).
In a Chapter 13 you can use a bankruptcy plan to catch up on your mortgage payments/car payments and subordinate your unsecured debt while retaining your secured property and stopping any foreclosure or repossessions. You can also use a Chapter 13 to strip a second or third (or fourth) mortgage that is wholly unsecured from a home (this would have the effect of reducing your mortgage payment forever).
It's also important to note that anyone who wants to file a Chapter 7 (liquidation) must pass a means test first--which basically means you have to be at or below the average gross income for your family size in your state. This varies by state. If you "fail" the means test, you may file a Chapter 13 and make an effort to repay at least some of your unsecured debt instead.
Personally, I find the bankruptcy process and its rules to be very reasonable, especially since bankruptcy reform. However, I live in a very debtor-friendly state. States like Maryland barely leave you with anything to exempt or "keep" in a liquidation.
Ah. See, I find the whole push for home ownership a deeply problematic and inappropriate form of social engineering to begin with. I do not own a home and never plan to, despite the ridiculous pressure to do so from the government.
I don't disagree with this. Home ownership isn't all it's cracked up to be. There are a lot of benefits to renting. My husband and I just sold our last house (what a disaster that was, especially given the fact that the housing values took a major downturn in our area between the time we bought and sold) and have been renting since then. Homeownership just seems like a terrible way to invest money, plus you have all of the costs that come along with home ownership--sometimes those costs are very high and unexpected. If I had invested the money we put down on that house in stock in my husband's employer--well, I would be a much less bitter person about homeownership myself probably.
😕
I like the flexibility that renting gives us, and if the whole place burned down tomorrow I would take my renter's insurance check and ride on out of town without a second look. As it is, if any appliance breaks or whatever, I know my renting costs are my rent and that's it. Our landlord had to replace our entire air conditioning unit last month to the tune of $4k. And he still had to pay his mortgage.
😱
