Can I keep my home in bankruptcy? Bankruptcy is a legal process that provides individuals and businesses with a fresh start by discharging or reorganizing their debts. One main concern for individuals who are considering a bankruptcy is whether they will be able to keep their home. The good news is that there are several options available to help you keep your home in bankruptcy.
Chapter 7 Bankruptcy and Your Home
Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy. In a Chapter 7 bankruptcy, a trustee is appointed to collect and sell any nonexempt assets to pay back your creditors. However, many states allow you to protect some of your assets, including your home, through homestead exemptions.
Homestead exemptions vary by state and can protect a portion of the equity in your home. Equity is the difference between the value of your home and the amount you owe on your mortgage. If the equity in your home is fully protected by the homestead exemption in your state, you can usually keep your home in a Chapter 7 bankruptcy. In Illinois, currently the homestead exemption is $15,000 for individuals, and $30,000 for married filers.
However, if you have a second mortgage or a home equity loan, the rules may be different. In some cases, these types of loans may not be discharged in a Chapter 7 bankruptcy, and you may be required to continue making payments on them.
Chapter 13 Bankruptcy and Your Home
Chapter 13 bankruptcy is often referred to as “reorganization” bankruptcy. In a Chapter 13 bankruptcy, you create a repayment plan to pay back your creditors over a three to five-year period. As long as you continue to make your plan payments, you can keep your home.
In a Chapter 13 bankruptcy, you can also take advantage of certain provisions of the bankruptcy code to help you keep your home. For example, if you are behind on your mortgage payments, you can include your past due payments in your repayment plan to catch up on your payments.
Additionally, if you have a second mortgage or a home equity loan, you may be able to “strip” these loans and treat them as unsecured debts. This means that you would only have to pay back a portion of these debts through your repayment plan. The remainder would be discharged at the end of your plan.
Working with a Bankruptcy Attorney
If you are considering filing for bankruptcy and want to keep your home, work with an experienced bankruptcy attorney. A bankruptcy attorney can help you understand the options available to you and guide you through the bankruptcy process. Contact us for a free bankruptcy consultation.
Your attorney can also help you determine whether a Chapter 7 or Chapter 13 bankruptcy is the best option for your situation. Additionally, your attorney can help you take advantage of the bankruptcy code to keep your home.
In conclusion, there are several options available to help you keep your home. The best way to ensure that you can keep your home is to work with an experienced bankruptcy attorney. Your attorney can help you navigate the complex bankruptcy process to get a fresh start.
