“Wait. I though filing Bankruptcy in Massachusetts Would Remove All Debt!”
While it is true that filing bankruptcy in Massachusetts will relieve you of most debt in relatively short order – if filing Chapter 7 bankruptcy in Massachusetts. And, it is also true, that when fling Chapter 13 bankruptcy in Massachusetts you will not only be able to keep many of your possessions, you will also be free of debt if you maintain the repayment plan established in your case. It is important to understand that certain debt is considered non-dischargeable debt under bankruptcy law.
What Debt is Non-Dischargeable in Massachusetts Bankruptcy Filings?
To begin with…what does non-dischargeable debt mean? Non-dischargeable in this context refers to certain debt that the government has essentially deemed yours until they are paid off, that is, you cannot wipe them out by filing bankruptcy. Items that fall within the non-dischargeable debt category are:
- alimony / child support obligations
- some (but not all) unpaid taxes (tax liens, for example)
- money owed by you to another or others as a result of certain willful and malicious personal injury judgments
- money owed by you to another or others for the death or injury as a result of a judgment against you for the operation of a motor vehicle while operating under the influence of alcohol or other substances
- debt not listed in your bankruptcy petition
- debt owed from a previously bankruptcy filing
- student loans (possibly dischargeable, but very difficult to manage to achieve unless you are able to prove that paying off the loan would not allow you to live according to any minimally reasonable living standard) – better to attempt to negotiate a payoff plan with your lender than to attempt to discharge this particular type of debt in many or most cases.
- income tax debt (unless a very special exemption is made…usually a tax attorney is utilized for these matters prior to even filing bankruptcy to weigh out this option)
What Happens to My Home When I File Chapter 7 Bankruptcy in Massachusetts?
It doesn’t matter whether we are talking about Chapter 7 or Chapter 13 bankruptcy in Massachusetts, either way it is the same, you must first figure out what equity you have in your home and whether that equity is or can be protected. Protecting home equity starts with figuring out how much of your equity is exempt or protected from the bankruptcy process. Thankfully, Massachusetts has an automatic homestead exemption of $125,000, which means that no matter what you have $125,000 of home equity protected from the bankruptcy trustee. Better yet, if you’ve filed for a homestead exemption before filing for bankruptcy in Massachusetts, you will have a $500,000 exemption. For about $50 in filing fees could be exempt up to that $500,000 limit.
Then, if the exemption covers the equity in the home you will not lose your home by filing for Chapter 7 bankruptcy. However, as before you filed for bankruptcy, you will have to continue to make your monthly mortgage payments timely and in full to stay out of foreclosure. If, however, the exemption does not cover the equity you have in the home, the bankruptcy trustee may force a sale of the home to pay your unsecured creditors (credit cards, etc.).
What Happens if I don’t have any equity in my home?
When you don’t have any equity in your home the bankruptcy trustee doesn’t look at the home as a source to pay unsecured creditors. You will have to continue paying the mortgage, however, or face foreclosure.
What Happens to My Home When I File Chapter 13 Bankruptcy in Massachusetts?
The answer to this questions starts with knowing how much equity you have in the home and ensuring that your mortgage payments are up to date. Once you know what the amount of equity is, subtract the amount that is exempt, the nonexempt equity is the remainder. It is the nonexempt amount that you will make up a portion of your repayment plan with the bankruptcy court. There will, of course, also be other amounts in the repayment plan that you will need to pay; mortgage arrearages, car payments, etc.
Also, you should be aware that for homeowners filing Chapter 13 in Massachusetts, past-due mortgage payments can sometimes be dealt with through the proposal to the lender of a repayment plan. For this option to work you will need to demonstrate that you possess enough income to cover the amount in the repayment plan plus the current amount that you pay on your mortgage.
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