Bankruptcy and Your Home: Can You Keep Your House?

 

## Bankruptcy and Your Home: Can You Keep Your House?

Filing for bankruptcy can be a daunting process, especially for homeowners concerned about losing their most valuable asset—their home. Fortunately, there are ways to protect your property during bankruptcy, but the specifics depend on the type of bankruptcy you file and the laws in your state. This blog post will explore how bankruptcy affects homeownership and what you can do to keep your house.

### **Understanding Bankruptcy Types**

When considering bankruptcy, it's essential to understand the two primary types that individuals typically file: Chapter 7 and Chapter 13.

**Chapter 7 Bankruptcy (Liquidation)**:

- In Chapter 7, non-exempt assets may be sold to pay off creditors. However, if you can protect all your home equity with exemptions, you may keep your house.

- To retain your home, you must be current on your mortgage payments and ensure that the equity in your home falls within the limits of your state’s homestead exemption.

**Chapter 13 Bankruptcy (Repayment Plan)**:

- Chapter 13 allows individuals to create a repayment plan over three to five years. This option is particularly beneficial for those behind on mortgage payments.

- You can catch up on missed payments through the repayment plan while retaining ownership of your home, provided you continue making regular mortgage payments during this period.

### **The Role of Exemptions**

Exemptions play a crucial role in protecting your home during bankruptcy. They allow you to shield certain assets from liquidation, including a portion of the equity in your home. 

- **Homestead Exemption**: Most states have a homestead exemption that protects a certain amount of equity in your primary residence. The amount varies widely by state; for instance, some states allow homeowners to exempt up to $50,000 or more in equity.

- **Wildcard Exemption**: In addition to the homestead exemption, some states offer a wildcard exemption that can be applied to various assets, including home equity. This can provide additional protection if your homestead exemption does not cover all your equity.

### **Factors Affecting Asset Protection**

Several factors determine whether you can keep your home during bankruptcy:

1. **Equity in Your Home**: Equity is calculated as the market value of your home minus any outstanding mortgage balances. If your equity exceeds the exemption limits, you risk losing your home in Chapter 7 bankruptcy.

  

2. **Current Mortgage Payments**: Being current on your mortgage payments is crucial. If you fall behind, lenders may seek foreclosure regardless of bankruptcy protections.

3. **State Laws**: Each state has different laws regarding exemptions and bankruptcy procedures. It’s vital to understand local regulations or consult with a bankruptcy attorney who can provide guidance tailored to your situation.

### **What Happens if You Can’t Protect Your Home?**

If you cannot protect all of your home equity under Chapter 7:

- The bankruptcy trustee may sell your home to pay off creditors. You would receive the exempted amount from the sale proceeds after paying off the mortgage and costs associated with the sale.

  

In contrast, under Chapter 13:

- You can keep your home by repaying any nonexempt equity through your repayment plan while making regular mortgage payments.

### **Conclusion**

Filing for bankruptcy does not automatically mean losing your home. By understanding the differences between Chapter 7 and Chapter 13 bankruptcies, knowing how exemptions work, and considering factors like equity and payment status, you can develop a strategy to protect your house during this challenging time. Consulting with a qualified bankruptcy attorney is essential for navigating these complexities and ensuring that you make informed decisions about keeping your home while seeking financial relief.

Citations:

[1] https://www.mglspc.com/protect-house-bankruptcy/

[2] https://www.nolo.com/legal-encyclopedia/chapter-7-or-chapter-13-bankruptcy-keep-home.html

[3] https://www.rkovacslaw.com/bankruptcy-law/will-i-lose-my-home-/

[4] https://point.com/blog/can-you-file-bankruptcy-and-keep-your-house

[5] https://www.nolo.com/legal-encyclopedia/homestead-exemption-bankruptcy.html

[6] https://www.debt.org/bankruptcy/file-for-bankruptcy-and-keep-house/

[7] https://www.wolterskluwer.com/en-au/expert-insights/protecting-property-against-creditors

[8] https://www.experian.com/blogs/ask-experian/bankruptcy-chapter-7-vs-chapter-13/