Can I Keep My House and File Bankruptcy?
One of the biggest myths surrounding bankruptcy is that you will lose your house if you file for bankruptcy.
I recently met with an elderly couple who had a significant amount of unsecured debt and had struggled financially for many years, just paying the minimums on their credit card payments. All those years of payments and the principal balance had barely decreased. They had never contacted a bankruptcy attorney before because they were under the impression that they would lose their house.
How to keep your house
Each state has a homestead exemption that protects a certain amount of equity in your residence from both the bankruptcy court and other creditors. The amount of equity you have in your home is calculated by subtracting the mortgages and other liens on the house from the current fair market value of the home. A bankruptcy attorney will help to determine whether the applicable exemptions can protect the equity in your property and will take the cost of selling the property into account when calculating the equity that is protected. If the equity is all exempt, you can generally keep the house, as long as you are current on all real estate taxes, utilities, and the mortgage(s) payments. Of course, you must continue making your monthly mortgage payments to avoid a foreclosure in the future.
Each state has an exemption that determines how much equity is protected. The amount of the homestead exemption can vary greatly from state to state. For example, an individual in
Legal Helpers State Exemptions
Fortunately, there are other options available for somebody who hopes to keep their house but has too much equity to file a Chapter 7. For example, a Chapter 13 Bankruptcy is not a liquidation bankruptcy, and you can keep your house and file bankruptcy, even if the exemption is not great enough to protect all of the equity in your house. With a Chapter 13 plan, you must have sufficient income to enter into the consolidation bankruptcy and present schedules to the court showing a feasible repayment plan that would pay back at least what the creditors would have received if your assets were liquidated in a Chapter 7. You should consult with a bankruptcy attorney who can calculate an estimated monthly trustee payment for you.
Fortunately for the elderly couple, they were able to discharge all of their unsecured debts in a Chapter 7, giving them approximately $400.00 less in monthly expenses, which made it much more comfortable for them to continue making the monthly mortgage payments on their residence, which they were happily able to keep.
