Most people can keep a house in bankruptcy as long as they can meet certain criteria. If you file for Chapter 7 bankruptcy, here are the factors that you’ll need to meet:
- You’re current on your house payment.
- You can continue making your house payment after your bankruptcy.
- You can exempt (protect) the equity in your home under your state’s exemption statute.
If you aren’t sure what it means to exempt property, here are how bankruptcy exemptions work.
You’re allowed to keep a certain amount of assets when you file for bankruptcy. The type and value of property you can protect will vary depending on your state. Some states allow you to exempt the equity in your house up to a particular dollar amount.
If your home has nonexempt equity—equity you’re not entitled to keep—the bankruptcy trustee (the court-appointed official that oversees your case) will sell your home for the benefit of your creditors. You can find out how much equity you can exempt by reading How to Find Your State Bankruptcy Exemptions.
Filing for Chapter 13 bankruptcy provides additional ways to keep your house—even if you’re behind on your payments or have nonexempt equity in the property. You must prove to the court that you have sufficient monthly income to pay for the following over the course of a three- to five-year repayment plan:
- your monthly house payment
- any past-due amount owed, and
- any portion of equity that you’re not allowed to exempt (up to the amount of your total debt).
Be aware that you’ll likely have to pay an additional amount to other creditors, as well—and the amount could be sizeable. For instance, if your house is worth a lot, you might have to repay all of your creditors in what is known as a 100% plan. Paying into a 100% plan is unusual, however, and many people pay significantly less than what they owe. To learn more, read Secured Claims in Chapter 13 Bankruptcy: Can I Catch Up on My House or Car Payment?
Bankruptcy law can be complicated, and you can’t count on the court or the trustee to help you along the way. If your goal is to protect your home, it’s best to consult with an experienced bankruptcy attorney before proceeding with either chapter.
Go to the main bankruptcy FAQ page.