This is often one of the biggest concerns people have when it comes to filing bankruptcy. Your home is important to you, and rightly so.
Unfortunately, there is no cut-and-dry answer when it comes to retaining your home. There are several factors that come into play regarding keeping your home during bankruptcy. Here’s what you need to know:
Three Factors Determine Whether You Can Keep Your Home In Bankruptcy Proceedings
The following three factors will determine whether you are able to keep your home in bankruptcy proceedings:
- The chapter of bankruptcy you file
- The amount of equity you have paid into your mortgage
- Whether you can afford your monthly mortgage payments while facing debt
Consider Which Bankruptcy Chapter Is Best For You
There are two main types of bankruptcies that consumers can choose from:
There are several differences that set them apart from one another, but the main difference is the exemptions you are entitled to. Remember, bankruptcy is structured to help you get a fresh start, not leave you impoverished.
Generally speaking, the exemptions of chapter 7 are much lower, stricter, and often less flexible than chapter 13 exemptions. Because of this, you are much more likely to retain your home if you file chapter 13 bankruptcy than you would if you file for chapter 7.
Think About Your Home’s Equity
When it comes to determining whether your home is exempt under chapter 7, the trustee only looks at the equity you have in your house. If you have very little or negative equity in your home, it will likely be exempt, so you wouldn’t need to sell it in the bankruptcy process.
However, If the equity in your home exceeds the exemption limit, you may have to sell it to pay your debt or “buy it back” by paying the trustee the value of your home.
Assess Your Monthly Mortgage Payments
If you’re able to keep your home through the bankruptcy process, you should be able to keep it after the bankruptcy, so long as you continue paying the mortgage.
However, if your income will not provide enough for you to make the mortgage payments, your home may face foreclosure. If you are in this situation, you should carefully consider if you want to keep your house, since bankruptcy provides you with the special opportunity to give up the house and mortgage without any additional penalties (in most cases).
You may also have more financial freedom to get your finances under control if you don’t have to deal with the burden of large monthly mortgage payments.
If you’re considering bankruptcy, don’t hesitate to reach out with any questions you may have.