Home ownership is an American dream - but what happens if you achieve it and then run into financial difficulty? In many cases, you can keep your home, even if you file for personal bankruptcy. If you file for Chapter 7 protection, however, keeping your home depends on how much equity you have in it.
Homestead Exemption in Chapter 7 Bankruptcy
With a Chapter 7 bankruptcy, the trustee sells your property and uses the money to pay your creditors. If your house is worth $250,000 and your mortgage balance is $250,000, your home is safe. If there's no equity in your home, the trustee has no reason to sell it. Even if you only owe $240,000 on your mortgage, the trustee can't sell the house and give the $10,000 difference to your creditors because federal bankruptcy law provides a homestead exemption – a dollar amount of equity in your home that is protected even if you file bankruptcy. As long as your equity is less than the homestead exemption, you won't lose your home.
Can Chapter 13 Bankruptcy Save Your Home?
In a Chapter 13 bankruptcy, you work out a court-supervised plan to repay your creditors. Each month, you give the bankruptcy trustee all of your excess income. Rather than selling your property, the trustee uses this money to pay your creditors. If you are behind on your mortgage payments, you can catch up by including the past-due amount in the debts covered by your monthly payment plan.
Bankruptcy and Mortgage
Bankruptcy doesn't make your mortgage go away. If you file for Chapter 7 personal bankruptcy and the trustee does not sell your home, you don't get to keep it unless you make the mortgage payments going forward. You must work out an agreement with your lender to reaffirm your mortgage through the bankruptcy court and enter into a new mortgage contract. If you file for Chapter 13 bankruptcy protection and you include your past-due payments in your repayment plan, you have to keep paying this amount or you might still lose your home.
Bankruptcy Can Eliminate Delinquent Property Taxes
Chapter 7 and Chapter 13 bankruptcies both can eliminate delinquent property taxes on your home. Chapter 7 erases these taxes just like your other debts. With Chapter 13, you would include the past-due property taxes in your repayment plan.
A Personal Bankruptcy Lawyer Can Help
The law surrounding your home in personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.