How to Keep Your House in Bankruptcy

Bankruptcy attorneys tell us that this is often the first question that they are asked, "Will I Lose My House if I File Bankruptcy?" We understand. Our homes are a safe zone for our families and, fortunately, the law recognizes that we all need somewhere to call home.

Keeping Your House: Filing Chapter 7 v. Chapter 13 Bankruptcy

Chapter 13

If you file for bankruptcy protection under Chapter 13 of the U.S. Bankruptcy Code, you can absolutely keep your house so long as you can make the mortgage, tax, and insurance payments.

Filing Chapter 13 may actually help you to keep your house because your debts are reorganized meaning that they may be renegotiated under more favorable terms.

All of this makes it easier to meet your monthly house payments.

Chapter 7

If you file for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code, you can keep you house so long as you can make the mortgage, tax, and insurance payments AND so long as any equity in the home is covered by your bankruptcy exemptions (or some other exemption or law).

Filing Chapter 7 may actually help you to keep your house because some non-secured debts are discharged. For example, when you no longer have to pay credit card, medical, and personal debts, you have more money to pay for housing expenses.

In theory, Chapter 7 is the "liquidation bankruptcy", meaning that the debtor's assets are sold to pay off his or her creditors. However, most Chapter 7 filers don't lose any assets, including their homes.

Because we all need a place to live and home ownership benefits society, states protect all or part of the equity in our homes.

Equity is the difference between the fair market value of your home and how much you owe the bank or mortgage lender.

Homestead exemptions vary greatly from state to state and change as the law changes. A bankruptcy attorney will be able to explain the current homestead exemption for your state of residence. In addition, he or she will also be able to guide you in protecting additional equity through wild card or other means (such as tenancy by the entireties law).

Federal exemptions allow an additional $1,150 wild card for individual filers and $2,250 for married filers, filing jointly.

In addition, New Jersey has tenancy by the entireties protection that protects assets owned as husband and wife from the creditors of just one of the spouses.

Illinois has an additional wildcard exemption that can be used to protect an additional $4,000 (individual filers) and $8,000 (married filers, filing jointly).

Keeping Your House: The Bottom Line

While some of the homestead exemptions look quite low, in reality most people do keep their homes as they go through and come out of bankruptcy.

It's imperative that you consult with a qualified bankruptcy attorney who will analyze your case and guide you in protecting your home during bankruptcy, determining whether bankruptcy is right for you, deciding whether Chapter 7 or Chapter 13 is appropriate for you, and protecting the most assets possible.

You are welcome to find and select a bankruptcy attorney through our free and private website, www.attorneys.org. If you choose to contact an attorney through our site, you are entitled to a free case evaluation. Be sure to ask your bankruptcy lawyer about protecting your home.

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