How To Protect Your Home In Bankruptcy

Protecting Your Home In BankruptcyPerhaps the number one concern of debtors considering bankruptcy is protecting your home in bankruptcy. In some cases, a foreclosure may be soon approaching and in other cases, mortgages are managed just fine, but filers are simply do not want to lose their homes because of a bankruptcy proceeding. There are several factors that determine whether you can keep your home in a bankruptcy proceeding. These include:

  • whether you file for Chapter 13 or Chapter 7
  • if you file for Chapter 7, how much equity you have in your home, and
  • if you file for Chapter 7, the amount of the available homestead exemption.

Protecting Your Home in Chapter 13 Bankruptcy

When you file a Chapter 13 bankruptcy, you do not have to surrender any property. Instead, you repay your debt either partially or in full over time.  Protecting your home in bankruptcy is very possible when you file a Chapter 13. You will not lose your property provided that you are current on your mortgage payments. If you have fallen behind on your mortgage payments or you are facing foreclosure, a Chapter 13 bankruptcy will give you the opportunity to make up the arrearage through your Chapter 13 bankruptcy repayment plan. For this reason, Chapter 13 bankruptcy is beneficial option for people who are at risk of losing their homes.

If you have second or third mortgages or home equity lines of credit (HELOCs) that are not secured by the equity in your property, Chapter 13 bankruptcy can also help you. If this is the case, those mortgages and loans may be able removed or “stripped off” from your home. To file a Chapter 13, you must meet certain requirements. Not all debtors are eligible to file a Chapter 13 bankruptcy.

Protecting Your Home in Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, certain assets may be sold to pay off creditors. However, bankruptcy law protects some of your property from being seized through “exemptions.” If your equity in property is exempt, it cannot be sold.

The federal exemptions protect up to $22,975 in your home and twice as much for married couples filing jointly. State homestead exemption amounts vary greatly from state to state.

It is important to keep in mind that a Chapter 7 bankruptcy does not provide an option to make up missed mortgage payments. This means that your bankruptcy filing will not prevent lenders from proceeding with a foreclosure and protecting your home in bankruptcy may not be possible unless you can work something out with your mortgage provider.

Protecting Your Home in Bankruptcy: The Automatic Stay and Foreclosure

Protecting your home in bankruptcy can also be achieved via the automatic stay which prevents creditors from engaging and pursuing collection actions once a bankruptcy petition has been filed.  The automatic may also protect you from foreclosure proceedings. However, lenders can request the court to remove the automatic stay (called lifting the stay).

 

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