Will I be able to keep my house when I file bankruptcy?
The loss of a home can be very disruptive. If you are considering filing bankruptcy one of the most important questions is, "What will happen to my home if I file bankruptcy?" The answer, however, will depend on the state where you live, what type of bankruptcy you file, how long you have owned your home, and the amount of equity you have in your home.
Filing Chapter 7 bankruptcy and saving your home
Chapter 7 bankruptcy eliminates most of an individual’s unsecured debts. If you file bankruptcy the court will seize your assets, sell them and use the proceeds from the sell to repay your debt. Whether the court can seize your home, however, is determined by the homestead exemption laws in your state.
For instance, if your homestead exemption only covers part of the value of your home whether or not your home will be sold may depend on the amount of equity you have in your home. For instance, if you own a home that is worth $100,000 and have a $75,000 mortgage on that home, then the equity in your home is $25,000, the difference between the home value and the mortgage. In this example, if you do not have a mortgage, however, the equity in your home is the full $100,000 value of the home.
Consider, the more expensive your home and more equity you have in your home, the more difficult it will be to protect your home in a Chapter 7 bankruptcy. The good news, however, is there may be several options for protecting your home even if you do not have a mortgage.
Remember, a mortgage is a secured debt and is not discharged through bankruptcy. Even if you are allowed to keep your home, the mortgage and the lien on your property will survive the bankruptcy. What happens if you fail to continue to make mortgage payments after the bankruptcy? The bank may seize your home.
Chapter 13 bankruptcy and saving your home
Many debtors who cannot file Chapter 7 bankruptcy or who cannot protect their home through Chapter 7 will choose to file Chapter 13 bankruptcy. Chapter 13 bankruptcy will allow you to reorganize your debts and repay your creditors through a reorganization plan. The benefit of the debt repayment plan is it may allow you to reduce your interest rate, create a longer payment term, or reduce the balance owed on certain assets.
If you submit an acceptable bankruptcy plan to the court, the trustee will not seize your home or try to sell it to generate funds to repay your creditors. For this reason, the bankruptcy exemptions generally do not come into play in a Chapter 13 bankruptcy.
Chapter 13 bankruptcy will generally allow you to keep you home if you continue to pay your mortgage payments (assuming your mortgage has not been paid off as a part of the payment plan) and repay any mortgage arrearages within your plan.
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Joint bank accounts may not be protected from garnishment.