Declaring bankruptcy is one of the most difficult, overwhelming, and complex issues someone can encounter. While experiencing intense emotions during this process is normal, these emotions can cloud choices you make that will affect your financial future for years to come. This is especially true if you are concerned about keeping your home before, during, and after you file for bankruptcy. This article discusses some of the most important things to consider if you want to keep your home when filing for bankruptcy.

Three Things to Consider When Declaring Bankruptcy if You Own a Home

When declaring bankruptcy, the ability to keep your home largely depends on your individual situation. Below are some of the most important things to consider if you are declaring bankruptcy yet you want to keep your home.

The Type of Bankruptcy You File

The two major types of bankruptcy are chapter 7 and chapter 13. There are multiple differences between the two. However, the most important difference to understand if you are looking to keep your home is what exemptions you are entitled to under each chapter. In the United States, bankruptcy is meant to give people a fresh start. Thus, when you declare bankruptcy, the government does not want to impoverish you and your family, so you are allowed to keep certain types of property when declaring bankruptcy. However, the property must be worth under a certain dollar amount in order for you to keep it. In general, chapter 7 exemptions are much lower, stricter, and offer less flexibility than chapter 13 bankruptcy.  

How Much Equity Do You Have in Your Home

Another important thing to consider when applying for bankruptcy is that if you are looking to keep your home, the trustee only considers the amount of equity in your home. Equity refers to the market value of your home minus the balance on your mortgage or home equity loans. Because most people who end up filing for bankruptcy have little home equity, they do not have to sell their home in the bankruptcy process if they do not want to. However, those who do have a significant amount of equity in their home will be forced to sell their home or pay the trustee for the value of the equity one has in the home.

Can you Afford Your Mortgage After the Bankruptcy Proceedings

If you were able to keep your house during the bankruptcy process, the next step is to ensure that you can continue paying your mortgage. For many, once they are free from their other debts and still have the same income as before, they can easily afford their mortgage. In this case, you will be able to keep your home. However, if you were forced to declare bankruptcy because you lost or job or a source of income, your lender may eventually foreclose on your home anyway. If you feel that you may not be able to keep up with your mortgage payments, it may be a better idea to simply let your home go during the bankruptcy process. Doing so may allow you to truly start your financial life over and work towards purchasing another home at some point.

Your Home and Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows one to take on a repayment plan where you repay a portion of your debts. Furthermore, the courts will appoint a trustee to your case and you must create a repayment plan with this person and then serve the plan to all of your creditors. Finally, both the trustee and your creditors can object to the plan you created.

In most cases, the trustee will initially oppose your repayment plan as they will look for you to pay a higher monthly payment. To fend off these monthly increases and other actions that hurt your finances, you should hire an attorney that specializes in bankruptcy. Your attorney will be able to negotiate with the trustee and creditors to create a payment plan that works for you and the courts. Furthermore, because the monthly payment will be lower than the court was originally looking for, you will have a greater chance to keep your home as you will have extra money to pay your mortgage.

Additionally, if you were missing your mortgage payments prior to filing bankruptcy, you will likely be able to keep your home as long as you start paying back these missed payments each month. The one benefit of filing chapter 13 bankruptcy when you want to keep your home is that you will be able to keep the property as long as you have the income necessary to make your mortgage payments as well as payments to the other creditors.

Your Home and Chapter 7 Bankruptcy

When filing chapter 7 bankruptcy, you do not get on a debt repayment plan, and instead, all your unsecured debts are wiped out and you receive your bankruptcy charge. While chapter 7 bankruptcy gets rid of the majority of your debts, you must catch up on mortgage payments before your bankruptcy case closes or you will lose your home.

What to Do if You Are Not Behind on Mortgage Payments

If you are not behind on your mortgage payments when you file chapter 7 bankruptcy, it is likely that you will not lose your home during the process. However, although you will likely not lose your home, if you have a certain amount of equity in your home above the state or federal exemptions, you will likely lose this equity as it will go towards paying off your debts. While this is unfortunate, you have the ability to pay off your mortgage and this new loan if you want to keep your house.

Ways to Save Your Home Before Bankruptcy

If you worry about having to apply for bankruptcy, there are a few things you can do to avoid ever reaching this point.

• Selling your interest to the co-owner, a family member, or a friend;
• Refinancing;
• Negotiating settlements or paying by installments if the available funds aren’t sufficient to meet your debts in full.

One important note is that if you decide to sell your property to a co-owner, family member, or friend, be safe that they are paying you a fair market price for what the property is actually worth.

Contact Our DC Law Office for More Information

Finally, for more on can you keep your home if you declare bankruptcy, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding real law, check out our blog.