Keeping Your Home in Chapter 7 Bankruptcy

Estimated reading time: 5 mins

Most people agonize over how they can file for bankruptcy and still keep their homes. In their minds, they think that bankruptcy relief is synonymous with losing most of their property. However, bankruptcy can generally protect you and help you get back up on your feet. 

The good news is that that’s not what happens in the majority of Chapter 13 and Chapter 7 bankruptcy cases. Additionally, it is important to understand the cheapest way to file for bankruptcy if that looks to be in the future. After getting professional bankruptcy guidance, lots of people find out you can file for bankruptcy and keep your home.

As you read further, you’ll learn more about:

  • What takes place after filing for bankruptcy on my home?
  • Is it possible to file for bankruptcy in case you own your house?
  • Bankruptcy and retaining your home

Filing for Bankruptcy and Retaining My Home? — Claiming Bankruptcy Exemptions

When filing for Chapter 7 bankruptcy, your equity in some assets can be used to repay unsecured creditors. Fortunately, you can use bankruptcy exemptions to avoid that. Bankruptcy exemptions relate to a broad array of assets¸ including retirement accounts, vehicles, clothing, homes, government benefits, tools of the trade, plus lots of other personal property. You may be asking yourself during this time, “Does bankruptcy stop foreclosure?” if so, understanding this during this time is very beneficial.

The Federal Bankruptcy Code permits states to approve state bankruptcy exemptions. The region a debtor files for bankruptcy is very crucial when it comes to exemptions. This is because they might have to utilize state bankruptcy exemptions or decide between federal and state bankruptcy exemptions. Both the federal and state bankruptcy exemptions offer protection, although they differ in some ways.

Homestead Exemptions

The bankruptcy homestead exemption is the specific exemption that may allow you to retain equity in your home and still keep it in a Chapter 7 bankruptcy.

For instance, in Florida, the homestead exemption is usually unlimited, but that may not be the case if you file a Chapter 7 bankruptcy in Ohio or Chapter 7 bankruptcy in Georgia. Nevertheless, the present home exemption under federal exemption regulations as of April 1, 2019, is $25,150.

Let’s say that a married couple file for a joint bankruptcy exemption and both their names appear on the home’s title. In such a case, the couple might double the federal homestead exemption to safeguard up to $50,300 of equity in their house. Keep in mind that federal bankruptcy exemptions are reviewed and adjusted every three years. 

So, in what way can bankruptcy exemptions assist me with bankruptcy and retaining my home?

Is it Possible to File for Bankruptcy and Retain My Home and Vehicle?

How do you calculate the net equity in your house? By deducting the total valid liens filed against the home title plus the mortgage payoff from the current reasonable market value of the house.

Let’s say your house is worth $100,000, and your mortgage costs $80,000. Then your net equity in the home is $20,000. In case you apply the federal bankruptcy exemption for houses of $25,150, the home’s equity is safe from unsecured creditors in the event you file for bankruptcy.

Note that the home exemption doubles for married couples if the two debtor’s names are on the home’s title, and they file a joint bankruptcy case.

Before you apply for Chapter 13 or Chapter 7, your bankruptcy lawyer painstakingly evaluates your assets against the bankruptcy exemptions at hand. If filing for bankruptcy can endanger your property, the lawyer should discuss this so that you can make a well-informed decision. Sometimes there are better debt-relief options other than bankruptcy.

Why Do Some People Lose Their Home after Filing for Bankruptcy?

 In some rare circumstances, debtors lose their houses after filing for bankruptcy. Case in point; bankruptcy doesn’t discharge the secured lien on your house title created by a mortgage. So if you’re unable to pay mortgage payments, surrendering the house in the bankruptcy might be your only option. Let’s say you are filing Chapter 7 bankruptcy in Texas and are 7 months arrears on your mortgage. In this situation, if you don’t catch up, you may face challenges.

Nonetheless, losing your home has a silver lining. If you can’t afford the house, surrendering it via a bankruptcy keeps a deficiency judgment at bay.

A deficiency is the money owed in case a foreclosure sale doesn’t settle the full mortgage amount. If you don’t file for bankruptcy, a deficiency judgment can be your experience even after a foreclosure sale. In simpler terms, you can still owe the mortgage firm extra money even after they have seized your home. When you file for bankruptcy, you eliminate deficiency judgment.

You can also lose your house in bankruptcy when the exemptions don’t cover the full equity in the house. A Chapter 7 bankruptcy trustee can auction the home and take the equity not safeguarded by bankruptcy exemptions to pay the unsecured creditors.

The first payment that the Chapter 7 trustee pays in full is the mortgage, then the payment of the home exemption to debtors. The remainder of the money goes to unsecured creditors.

Will I Lose My Home by Filing for Chapter 13?

In case the net equity in your house is higher than the topmost bankruptcy exemption amount, or you have fallen behind on mortgage remittances, you can save your home by filing for Chapter 13.

A Chapter 13 bankruptcy can be termed as reorganization where you settle part of your debts via a Chapter13 bankruptcy arrangement. In the plan, you can catch up with pending mortgage payments gradually, and most importantly, you get to retain your house.Besides, in case your home exemptions surpass the maximum bankruptcy exemption, you can pay extra money to your unsecured creditors in Chapter 13. When you part with some extra cash monthly via the bankruptcy arrangement, you can retain your house.

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