Can I Keep My Home After Filing Bankruptcy?
The decision to declare bankruptcy often comes in an overwhelming time of your life. If you're thinking about declaring bankruptcy, the chances are that you're worried about how you can manage all your finances now and in the future. For many, the main worry may be that you might not be able to keep your most important piece of property: your home. This article will give you some useful information so you can know what to expect.
What are the chances I can keep my home after bankruptcy?
The answer, like so many others in law, is that "it depends." Most people that declare bankruptcy are able to keep their houses throughout the process, but some are not. There are three factors that determine whether you can keep your home in bankruptcy proceedings:
- The type of bankruptcy you file: There are two types of bankruptcies to choose from: chapter 7 and chapter 13. There are many differences between the two, but the major difference has to do with the exemptions to which you are entitled. The federal government assumes that everyone tries to pay off their debt, and that if someone has excessive property they should sell it to pay off their debt. However, bankruptcy is designed to give you a fresh start, not to leave you impoverished, and the federal and state governments often have exemptions. This means that if your property is worth less than a particular dollar amount, you can keep it. In general, Chapter 7 exemptions are much lower, stricter, and offer less flexibility than chapter 13 exemptions. So if you file a chapter 13 bankruptcy, you are much more likely to keep your house than if you file a chapter 7.
- How much equity you have in your house: Don't worry, chapter 7 filers, there are still ways you can keep your house. When deciding whether your house is exempt under chapter 7, the trustee only considers the equity in your house. Equity is the market value of your house minus the balance on your mortgages or home equity loans. Many bankruptcy filers have little or negative equity in their houses, so their houses are exempt and need not be sold in the bankruptcy process. However, if you have equity in your home over the exemption limit, you may be forced to sell your house to pay your debt or "buy it back" by paying the trustee the value of your house.
- Whether you can afford your mortgage: Assuming you kept your house throughout the bankruptcy process, after the bankruptcy you are free to keep your home as long as you continue to pay the mortgage. It may be that after you are free of all the rest of your debt you will be able to afford the mortgage payments easily. If so, you'll be able to keep your house.
However, if your income will not allow you to make your mortgage payments, the bank may eventually foreclose on your home. Bankruptcy filers in this situation must carefully consider whether they want to keep their home, since bankruptcy gives them a unique opportunity to just walk away from the house and mortgage with no additional consequences, in most cases. It may also be easier to get your financial life under control if you are not burdened by large monthly mortgage payments.