Filing bankruptcy involves a difficult balance between what you owe, what you have, and what you can afford. Bankruptcy is a big financial step, but it’s one that, in most cases, allows you to keep your home. However, while there are ways to protect your home by filing bankruptcy, that doesn’t automatically mean you’ll keep it. Everything will depend on each particular case, the type of bankruptcy and other issues. Therefore, in this post we will see everything about the question of whether I can keep my house if I declare bankruptcy.
Basic questions about whether I can keep my house if I file bankruptcy
Bankruptcy is a second chance for people who have more debt than they can pay. Bankruptcy laws were created with the understanding that there is no advantage to putting someone out on the street, and bankruptcy courts work to make sure that doesn’t happen. Thus, there is support to keep your home during bankruptcy. On the other hand, paying down debt is an obligation, and there’s no “home free” option that comes with it. No bankruptcy action forgives a principal mortgage. The bottom line is that if you want to stay in your home, you still have to pay your mortgage.
Different Ways to File Bankruptcy
Bankruptcy is a process in which the court decides the best path for a person with overwhelming debt to pay as much as possible, taking into account their assets. The solution may be Chapter 7, which discharges debt but also liquidates assets, though not all of a person’s assets. Chapter 13 bankruptcy allows the person to keep his or her assets, but puts them on a strict payment plan.
Regardless of the type of bankruptcy you file for, the court automatically stays any foreclosure action. This means that if your home was being foreclosed on, that proceeding will stop while the court determines your ability to pay, so there is a fair chance that I can keep my home if I file bankruptcy. However, it does not mean that you automatically keep your home.
In both types of bankruptcy, there is a homestead exemption, a way to protect part of the estate that has been built. It is another element of bankruptcy designed to make it more possible to keep your home. Each type of bankruptcy is a totally different process, but in each, the idea behind the waivers is that the person needs to protect some important assets to get ahead. There are also exemptions to keep the car and other necessary items. The amounts vary by state, but the types of things you can exempt are limited to what you need to get by. Luxury items are not listed.
The federal government has a homestead exemption that allows a person who files for bankruptcy to protect a certain amount of equity in a home. The federal exemption, which changes every three years, is $25,150 through April 2022. State exemptions can be higher or lower. You are required to have lived in a state, in that home, for 40 months, generally, to claim a state exemption. Check your state rules for details, or contact Bankruptcy Now for more information.
Can I keep my home if I file for Chapter 7 bankruptcy?
In a Chapter 7 bankruptcy, the court will discharge most of your unsecured debts, that is, credit card debts and personal loans that are not tied to an asset like a house or car. Once the debt is out of the way, it should be easier to make your mortgage payments. If you can’t pay your mortgage after bankruptcy, the result will be the same as if you didn’t pay it before bankruptcy: you’ll end up losing your home. However, I can keep my house if I file bankruptcy on the condition that the original mortgage is paid.
If you know you are going bankrupt and want to keep your home, you can see if your mortgage lender would work with you to modify your mortgage agreement in a way that allows you to catch up on your payments. Do it before filing bankruptcy. Once you file bankruptcy, your assets are taken over by the court and out of your hands.
There are a few things that make it more likely that your home will be protected if you file for Chapter 7 bankruptcy. For example, if you are current on your mortgage payments, you will have some points in your favor. If all or most of your estate is protected by an exemption, you will also have certain advantages. If you owe more than the house is worth, and show the court that you can make your mortgage payments on time, you have a good chance of keeping it. Finally, if you negotiate with your lender before you file bankruptcy for a loan modification, you will ensure that you keep it without question.
Can I keep my home if I file for Chapter 13 bankruptcy?
The good news about filing Chapter 13 bankruptcy is that it is designed to allow you to keep your home. You, the bank, and your creditors decide on a payment plan that lasts three to five years, but your assets are not sold. Upon completion of the plan, your unsecured debt is cancelled. The trick, of course, is to go all the way. If successful, it is a fact that I can keep my home if I file for Chapter 13 bankruptcy.
The plan you develop with the court and your creditors will include a way to catch up and pay your mortgage, if you can afford it. Under a Chapter 13 repayment plan, if you’ve fallen behind on your mortgage, the plan will determine how to pay the delinquent payments over three to five years, but you’ll also need to make your current monthly payments .
As you can see, in both cases I can keep my house if I file bankruptcy. However, it is important to clarify that it is not something 100% sure. To stay on top of things, it’s a good idea to enlist the help of a bankruptcy expert like Michael J. Brooks. Do not hesitate to contact him to find out more.