if you file bankruptcy can you keep your house

Amstronge

4 min read

·

16-04-2025

8

0

Share

Filing for bankruptcy can be a daunting experience, especially when considering the potential impact on your assets, such as your home. Many people worry about losing their house. This comprehensive guide will explore the complexities of Chapter 7 and Chapter 13 bankruptcy and how they affect homeownership. We'll clarify whether you can keep your house and what factors influence the outcome.

Understanding Bankruptcy Chapters

Before diving into the specifics of homeownership, it's crucial to understand the two primary types of bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy: Liquidation

Chapter 7 bankruptcy involves the liquidation of non-exempt assets to repay creditors. This means that the bankruptcy trustee will assess your assets to determine what can be sold to satisfy your debts. Certain assets, however, are protected by state and federal exemptions.

What are exemptions? Exemptions are laws that protect certain assets from being seized by creditors during bankruptcy. These exemptions vary by state, but commonly include a certain amount of equity in your home. This amount is usually specified as a dollar amount or a percentage of your home’s value.

Can you keep your house in Chapter 7? You can often keep your house in Chapter 7 if the equity in your home falls below the state's exemption limit. This means the value of your home, less the amount of your mortgage, must be below the protected amount. If your equity exceeds the exemption, the trustee might be able to sell your home to pay your creditors.

Chapter 13 Bankruptcy: Reorganization

Chapter 13 bankruptcy involves creating a repayment plan over three to five years. During this period, you make regular payments to creditors according to the plan approved by the bankruptcy court.

Can you keep your house in Chapter 13? Chapter 13 is generally more favorable for homeowners. It provides a structured approach to debt repayment, allowing you to keep your home if you can make the agreed-upon payments. Falling behind on the Chapter 13 plan could lead to losing your house. However, it often gives you more time to catch up on mortgage payments and avoid foreclosure.

Factors Affecting Home Retention in Bankruptcy

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

• State Exemption Laws: As mentioned earlier, state laws define the amount of equity you can protect in your home. These laws vary widely across the country.
• Mortgage Payments: Keeping up with your mortgage payments is vital, regardless of the bankruptcy chapter you file under. Failure to pay your mortgage can lead to foreclosure, even during bankruptcy proceedings.
• Home Value: A recent appraisal of your property will determine the actual equity in your home. This directly impacts whether your home equity is above or below the exemption threshold.
• Debt Amount: The total amount of your unsecured debts (credit cards, medical bills, etc.) will impact whether you qualify for Chapter 7 or Chapter 13, and how much you'll need to repay in either chapter. Larger debts could make it harder to retain your home.
• Your Income and Expenses: In Chapter 13 bankruptcy, the court will evaluate your income and expenses to determine a feasible repayment plan. Your ability to make the plan payments will significantly influence your ability to keep your house.

How to Protect Your Home During Bankruptcy

• Consult with a Bankruptcy Attorney: This is crucial. A bankruptcy attorney specializing in real estate can guide you through the legal process, help you determine the best chapter for your situation, and maximize your chances of keeping your home. They are well-versed in state exemptions and can navigate the complexities of bankruptcy law.
• Maintain Mortgage Payments: Keeping your mortgage payments current is paramount. Even missing one payment can jeopardize your homeownership. If facing financial hardship, communicate with your lender as soon as possible to explore possible options like forbearance or loan modification.
• Accurate Financial Documentation: Be prepared to provide comprehensive financial documentation, including income statements, expense reports, and property valuations.

Frequently Asked Questions

Q: Can I file bankruptcy and still refinance my mortgage?

A: It is possible but it's significantly more difficult. The lender's perception of risk increases when you file bankruptcy. This may require significant improvements to your credit score after the bankruptcy is discharged before refinancing.

Q: What happens if I can’t afford my mortgage payments even after bankruptcy?

A: Even after filing for bankruptcy, if you fail to maintain your mortgage payments, you still face foreclosure. Bankruptcy does not eliminate your mortgage; it simply provides a path to manage your debts.

Q: Is it better to file Chapter 7 or Chapter 13 to keep my house?

A: This depends on your individual financial situation. Chapter 13 is generally more advantageous for homeowners, providing a structured repayment plan. However, Chapter 7 might be a better option if your equity is below the exemption limit. A bankruptcy attorney will guide you toward the best option.

Conclusion

Whether you can keep your house during bankruptcy depends on various factors, primarily the equity in your home relative to your state's exemption laws, your ability to make mortgage payments, and the type of bankruptcy you file. Seeking advice from an experienced bankruptcy attorney is crucial to understanding your rights and options and maximizing your chances of retaining your home. Remember, proactive planning and open communication with your lender can significantly improve your outcome. Don't hesitate to seek professional guidance. Filing for bankruptcy can feel overwhelming, but understanding the process is the first step toward financial recovery and securing your future.