Can I Keep My House When Filing For Bankruptcy?
If you are struggling to repay debts that have become unmanageable, bankruptcy is an option that might help you to have a new start. It is common for homeowners to worry that they will lose their homes if they file for bankruptcy protection. Whether you might lose your home will depend on its value, the amount of equity that you have built up in it, where you live and the bankruptcy chapter that you choose. An experienced bankruptcy lawyer can provide more guidance to you about the most appropriate steps to take.
Federal and state exemptions
There are federal bankruptcy exemptions for certain types of property, and many states also have their own exemptions. Some states allow you to choose either the federal or the state exemptions. If your state lets you do this, a bankruptcy attorney can discuss which option offers you the greater benefits. Homestead exemptions protect the home in which you live up to a certain amount.
The type of bankruptcy that you file
The type of bankruptcy that you choose to file may also impact whether or not you are able to keep your home. Chapter 7 bankruptcy is called a liquidation because your non-exempt assets will be sold and the proceeds divided among your creditors. Chapter 13 bankruptcy allows you to keep more of your assets. In exchange, you repay a portion of the debts that you owe over a period that lasts from three to five years. Because of this difference, the exemptions that are available for Chapter 13 petitions are less strict and may allow you to keep more of your property and your home.
How much equity you have in your home
When the bankruptcy trustee considers the value of your home in determining whether the homestead exemption applies, he or she will only be looking at the amount of equity that you have in it. If you are like many people who are forced to file for bankruptcy protection, you may have very little equity built up in your home. If you do have a substantial amount of equity in your home, your bankruptcy lawyer may assist you with figuring out whether it falls within the state or federal exemption amount. If it exceeds the amount of the exemption, your bankruptcy attorney may suggest that you choose Chapter 13.
Your ability to repay your mortgage
The first mortgage that you have on your home is a secured debt, meaning that your obligation to repay it will continue during and after your bankruptcy case. If you are upside-down in your home and have a second mortgage, it may be possible to strip the second lien in a Chapter 13 bankruptcy. Once your bankruptcy is completed, you will need to be able to continue making your mortgage payments. If you are unable to do so, your lender may move to foreclose on your home.
Whether you choose Chapter 7 or Chapter 13 bankruptcy, it is possible for you to keep your home. To learn more about which chapter might be the better choice for you, talk to an experienced bankruptcy lawyer for guidance about the laws in your state.