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Bankruptcy and Homeownership
Whether you can keep your home in bankruptcy depends on several factors including what chapter of bankruptcy you file under, your state's laws and the amount of equity you have in your home. Generally, if you file under Chapter 11 or 13, you will most likely keep your home, but if you filed under Chapter 7, you can only keep a certain amount of the equity in your home so you may have to sell it if you have too much equity. Chapter 11 Individual debtors, meaning non-business debtors, can generally choose to file either Chapter 7, 11, or 13 bankruptcy. Chapter 11 is a form of "reorganization" bankruptcy, and most individual consumers will not file under Chapter 11, but instead businesses will reorganize under Chapter 11. But, once in a while, an individual debtor may file under Chapter 11, and when that happens, the debtor can keep his home. Chapter 13 You can also keep you home if you file for bankruptcy protection under Chapter 13, which provides a legal way for you to create a debt repayment plan that, once approved by the bankruptcy court, allows you to repay your creditors over a certain period of time. Usually the repayment terms are more favorable, such as more time, or lower interest rates and monthly payments. Because you are repaying all or most of your debts under Chapter 13, you probably won't have to sell any property, which means you can keep your home. (Continued Below) Please take a moment to consider your debt relief options Bankruptcy Chapter 7: Discharges all debts completely, no monthly payments. Read More | Online Qualification Test | Comparison | Calculate Savings Debt Negotiation: Repay about 50% of debts*, dramatic monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Bankruptcy Chapter 13: Repay about 85% of debts*, no monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Credit Counseling: Repay 100% of debts, some monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Chapter 7 Overview You may have to sell your home under a Chapter 7 bankruptcy. Referred to as "liquidation," in a Chapter 7 filing most of your property is sold, or liquidated, and the money used to pay off as many of your debts as possible. The remainder of your debts are discharged, meaning you are no longer legally required to repay those debts. There are a few exceptions, notably taxes, student loans and family support obligations. State Law Home Exemptions Every state has laws that allow debtors to claim certain exemptions in a Chapter 7 bankruptcy, including an exemption for home equity. In most states, this is referred to as the "homestead exemption." You will need to check your state's homestead exemption amount, but generally the amount can range from $20,000 up to $250,000. Calculating Your Equity Equity is the difference between the current fair market value of your home and the current payoff balance of any mortgages on your home. If your equity is less than the homestead exemption for your state, then you will not have to sell your home. But, if your equity exceeds the amount of your homestead exemption, then you will probably have to sell your home. For example, suppose that you owe $200,000 on a home worth $250,000 and your state allows a $50,000 homestead exemption. Because your equity ($250,000 minus $200,000) equals $50,000, which is the amount of your homestead exemption, then you will not have to sell your home. But, if you owed only $150,000 then you would have $100,000 in equity and you would probably have to sell the home. You would be able to keep $50,000 and the other $50,000 would be used to pay off your other debts. Bankruptcy Home: Bankruptcy and Home Ownership in Chapter 7 or Chapter 13... Related Articles What Happens to Your Home When You File Bankruptcy? : A helpful article whose title says it all Bankruptcy and Your Home : Explains how a BK affects your home Can You Keep Your Home if You File Bankruptcy?: Explains whether or not you'll be able to keep your home Bankruptcy and Vacation Home : Find out how a BK affects vacation homes Mobile Home : How does declaring BK impact mobile homes? Find out! Home Ownership : Learn how a BK affects ownership of a home Home in Bankruptcy : Learn even more about your home through a BK Should You Sell Your Home Before Bankruptcy? : Article elaborates about if or when you should sell if considering a BK |
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