Are you about to file for bankruptcy? Are you nervous about what you may lose? It is a common assumption that you will lose your house if you’re getting bankruptcy relief; however, this is not true. As a matter of fact, it hardly happens, especially if you’re filing for a Chapter 7 and Chapter 13 bankruptcy. You have numerous options at your disposal that can help you protect your home in bankruptcy. With the right advisor, even high-income earners can keep their homes.
Keep reading to know more about:
- What happens if I file bankruptcy on my house?
- If you own your home, can you file bankruptcy?
- Bankruptcy and keeping a house.
How to File Bankruptcy and Keep My House?—Claiming Bankruptcy Exemptions
You may qualify for Chapter 7 bankruptcy via the bankruptcy means test, but do you want to file? Not necessarily. Many people consider whether they will lose their home when filing bankruptcy.
You have access to a barrage of bankruptcy exemptions when you file. These bankruptcy exceptions are designed to help you protect some of your properties from being liquidated by the bankruptcy trustee to pay unsecured creditors. You can use bankruptcy exemptions on a wide range of assets. This includes vehicles, retirement accounts, government benefits, tools of the trade, clothing, and some other personal property. It’s important to realize that bankruptcies can vary from state to state. For instance, if you file for Chapter 7 bankruptcy in Pennsylvania, it may look slightly different from a Missouri Chapter 7 bankruptcy. Keep this in mind before moving forward with filing for bankruptcy.
The Federal Bankruptcy Code gives states the ability to make laws about bankruptcy exemptions. Depending on the state where you’re filing bankruptcy, you may be mandated to choose between federal and state bankruptcy exemption or be mandated to choose only state exemption. The benefits you’ll enjoy in state and a federal bankruptcy exemption differ by a wide margin.
For example, If you reside in Florida, you will enjoy an unlimited homestead exemption, while the federal exemption law offers an exemption of up to $25,150 on your home. If couples file for a joint bankruptcy exemption, then they will enjoy double the federal homestead exemption, which is $50,300 equity in their home. The government reviews and adjusts bankruptcy exemptions every three years. Another review is due to come up on April 1, 2022.
Now let’s answer the question; “how can bankruptcy exemptions help me keep my house?”
Can I File Bankruptcy and Keep My House and Car?
To know the net equity in your home, you simply have to subtract the sum of your mortgage payoff and all valid lien that is filed against your house title from your home’s current fair market value.
Let’s consider an example for better understanding; if your home’s fair current market value is $100,000 and you have a debt of $80,000 on a mortgage, then your home has a net equity of $20,000. As such, if you apply for a federal exemption with a homestead exemption of $25,150, then your home will be protected from being liquidated. Have it at the back of your mind that homestead exemption will double in an instance where the couples that have their names as homeowners file a joint bankruptcy petition.
If you hire a competent bankruptcy attorney, he/she will check all your assets to know the bankruptcy exemption that will best protect your asset. For example, bankruptcy does not affect your retirement income; as such, you can’t lose your retirement income when you file a bankruptcy discharge. Hiring an attorney can be helpful for many reasons. As mentioned above, bankruptcy requirements and regulations can vary depending on which state you are filing in. So if you are planning to file for a Wisconsin Chapter 7 bankruptcy, having a bankruptcy attorney who understands Wisconsin’s specifics could be the difference between keeping your car or not.
Why Do Some People Lose Their Home When They File Bankruptcy?
In some cases, some people lose their homes when they file for bankruptcy discharge. Bankruptcy will not discharge a secured lien on your home title. As such, you will have to surrender your home if you don’t meet up with your bankruptcy obligations.
One positive thing about surrendering your loan is that it can help you avoid getting a deficiency judgment. A deficiency is money you owe when the money realized from the foreclosure on your home does not completely pay off your debt—the result of this is that you may pay more than you owe. But when you lose your home to bankruptcy, then a deficiency will no longer occur on the property.
Another example of how you can lose your home in bankruptcy is if the bankruptcy exemption in your state does not protect your property from being liquidated by the bankruptcy trustee. In an instance where you filed for Chapter 7 bankruptcy without proper exemption protection, the Chapter 7 bankruptcy that’s in charge of your case will liquidate your house, and use the money to settle your unsecured creditors. A Chapter 7 trustee will first pay off your mortgage debt before paying homestead exemption to the debtors and will then use the remaining (if any) to pay your unsecured creditors.
Will I Lose My House If I File Chapter 13 Bankruptcy?
Chapter 7 is often the cheapest option, but let’s discuss how Chapter 13 bankruptcy handles homes over the equity exemption.
It’s best to file for Chapter 13 bankruptcy if your home’s net equity is higher than the bankruptcy exemption allowed or in an instance where you’re not up to date with your bankruptcy payments.
Chapter 13 bankruptcy works by reorganizing your loan. Filing for Chapter 13 bankruptcy saves you the stress of meeting up with unrealistic debt payments as it helps you rearrange your payment plan and fees such that you’re only mandated to pay some of your debt, and you can catch up with bankruptcy payments. If bankruptcy exemption does not cover your home, you will be required to pay a little extra on your bankruptcy payment to keep your home. Ensure you keep up with your payments as failure to do so means that your creditors will come after your asset.