How to Keep Your Home in a Chapter 7 Bankruptcy

Law Blog

"Bankruptcy" is a word that few people want to hear, but it represents an opportunity to escape crippling debt and get back on the right financial track. That doesn't mean bankruptcy should be taken lightly, however. Going through Chapter 7 bankruptcy means turning over most, if not all of your assets to a trustee who'll then determine how to liquidate and distribute those assets to satisfy creditors and settle your debts.

But not every asset is at risk of liquidation in a Chapter 7 bankruptcy. If you're worried about keeping your home, the following offers several ways you can save your home from being liquidated with other assets.   

1. Stay Current on Your Home Payments

If you're paying off a mortgage on your home, it's essential that you keep up with the monthly payments. Mortgages are considered a "secured" debt and despite Chapter 7 bankruptcy's ability to discharge secured debts, it won't discharge the mortgage lien held by your lender. Filing for Chapter 7 bankruptcy creates an automatic stay that stops foreclosure and collection proceedings, but your lender can ask the court to lift the stay and allow the foreclosure to continue.

If you fall behind on your mortgage payments, a Chapter 7 bankruptcy won't offer much protection against your home being foreclosed on and sold at auction. If you're in danger of losing your home to foreclosure, you're better off filing for Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, you'll be able to restructure your mortgage and create a repayment plan to reduce your debts without losing your home.

2. Assess How Much Equity Is in Your Home

How much equity exists in your home also plays a major role in saving your home in Chapter 7 bankruptcy. You can determine your home's equity by subtracting your outstanding mortgage balance from the value of your home. The amount that's left over represents how much you'd make from selling your home under ideal circumstances.

If there's any equity in your home, expect your bankruptcy trustee to take an interest. Your trustee can order the sale of your home to extract its equity and distribute the proceeds to your creditors. Unfortunately, that means you'll lose your home to satisfy your debts.

On the other hand, your trustee won't be interested in your home if there's no equity to extract from it. If the value of your home just about covers your mortgage balance, there won't be any leftover proceeds for your trustee to disburse. Homes with negative equity, where your mortgage balance far exceeds the value of your home, are also safe from being liquidated.

3. Explore Exemptions for Your Home

State and federal homestead exemptions can help protect your home in a Chapter 7 bankruptcy. These exemptions work by exempting the equity in your home up to a certain amount. Other exemptions can also protect certain assets from liquidation, including your personal vehicle, Social Security benefits, household goods and health aids. Homestead exemptions can protect the equity in your home as long as it's your main place of residence.

At least 19 states and the District of Columbia allow you to choose between using federal exemptions and state exemptions. Some states offer more generous exemptions than those offered through federal standards, so it pays to investigate your state's statutes before proceeding. Elsewhere, you're limited to using the exemptions defined in your state's statutes.

You can also combine federal or state homestead exemptions with a wildcard exemption. Wildcard exemptions are additional exemption amounts that can be used on any asset, plus they can be combined with other assets or split among multiple assets. Wildcard exemptions can be used to shore up homestead exemptions that fall short of your home's equity.

To learn more about how to navigate this process, contact services such as McElrath Law.


15 August 2018

Noni and the Accident

My name is Noni. When I was in college, I was hit by a car while crossing the street. My life was never in danger, but I did break a few bones and had a lot of huge medical bills. I was hoping I wouldn't have to get involved with an attorney, but unfortunately, it came down to that. I used a family friend who is an accident attorney to get some compensation. A few years later, I was hit while riding my bike and had to go through the same process. I suppose I'm lucky to be alive. And it's thanks to accident attorneys that I have been able to put my life back together. I started this blog as a way to let others know just how much lawyers can help you in certain situations.