November 4, 2019

Drowning In Credit Card Debt…But I Can’t Lose My Home

Meet Jane, an amazing website designer with a keen interest in designer shoes and top end handbags.  Jane bought her first home about 5 years ago and continues to make improvements in order to make it her dream home.  During the last 5 years, she has done many renovations and has put a lot of time and money into home improvements.  Jane loves her home!

But, like most interesting stories, a problem is on the horizon.  Over the last several years, Jane has been collecting Coach purses and designer shoes.  While she makes a good living at her job, her credit card spending has exceeded her income.  Her current credit card debt is fast approaching $30,000.00 and the minimum monthly payments are about $600.00.  Jane is to the point where she is making minimal progress on the credit cards, meanwhile having little money left over for home improvements and basic living needs. She needs a fresh start.

Looking for debt relief options, Jane searches the internet and 2 options have caught her attention, debt consolidation and chapter 7 bankruptcy.  She calls a handful of debt consolidation companies only to learn that most are out of state.  The best one was able to lower monthly payment to $450.00, but she learned that one of her credit cards will refuse to participate.  Given all this information, debt consolidation won’t meet her needs.

What about chapter 7 bankruptcy? The thought of chapter 7 bankruptcy wiping out the entire $30,000.00 of credit card debt was very appealing to Jane, but she remains nervous about the stigma of losing your house in chapter 7 bankruptcy. Home loss is a total deal breaker for Jane. 

Despite the fear of the unknown, Jane reaches out to Toledo bankruptcy attorney, Scott France, and schedules her free initial consultation. The consultation was both informative and calming.  After a review of Jane’s finances and household size, it was determined that Jane qualified for chapter 7 bankruptcy relief. 

Now it was time for the hard question, “If I file for chapter 7 bankruptcy relief, will I lose my home?” It was difficult to even get the words out. Attorney France determined that Ohio’s generous Homestead Bankruptcy Exemption was more than enough to protect her home, all while wiping out $30,000.00 of Jane’s credit card debt.  Sounds like a “win/win”?

A little behind the scenes knowledge will help make some sense of all this. There are essentially 2 ways to lose your home in this situation:  (1) home foreclosure and (2) asset liquidation in chapter 7 bankruptcy.  Home foreclosure generally occurs when a homeowner falls substantially behind on their mortgage payments.  A lawsuit is filed by the mortgage company and eventually the home may be sold, leaving the homeowner responsible for any remaining balance.  In our case, Jane is current on her mortgage payments, so home foreclosure is not a concern.

[NOTE:  Homeowners who are in arrears on their mortgage should inquire about chapter 13 bankruptcy, which may be an option to save a home, but timing deadlines do exist].

Liquidation of a home in chapter 7 bankruptcy is a concern for most debtors, but Ohio has a very generous homestead exemption which protects many homeowners who remain current on their mortgage payments.  Per the Ohio Revised Code, an Ohio homeowner can protect up to $136,925.00 of equity in a home.  In our example, Jane’s home is valued at $200,000.00.  Her current mortgage balance owed to MegaBank is $130,00.00, thus leaving about $70,000.00 of equity.  Under current Ohio law, Jane can use her homestead exemption to protect the entire amount of equity in her home.  Bottom line:  Jane keeps her dream home and gets rid of $30,000.00 in credit card debt.  The elimination of her credit card debt will free up extra money needed for living expenses, savings,  and home improvements.

For sure, bankruptcy has many stigmas, including the belief that you will lose your home.  An experienced chapter 7 bankruptcy attorney can give you the facts, not the myths, so you can make an informed decision that meets your needs.

France Law Group: “Your Fresh Start Begins Here.”