When you file for bankruptcy to get rid of your debts, there are certain concerns regarding your assets, especially your house. According to lawyers of Dallas based bankruptcy law firm Recovery Law Group, you have the option of retaining your house, delaying foreclosure or letting the house go when you file for Chapter 7 bankruptcy. However, you can only keep your home in a liquidation bankruptcy if you are current on your mortgage payments and there isn’t significant equity in the home to pay creditors.
What happens to your home during bankruptcy depends a lot on various other circumstances. These are a few options:
- The bankruptcy trustee can sell your home
Exemptions provided by state and federal government provide you certain equity to protect your primary residence as well as trailers, burial plot, etc. If there is not much equity left in the property to pay your unsecured creditors, the bankruptcy trustee won’t sell your home. In case the real estate sector has boomed, the non-exempt equity in your home might not be able to protect your house from going under the hammer.
Homestead exemption is used to protect a certain dollar amount (certain acres in some states) of equity in your primary residence. This amount varies from state to state and whether you are choosing state or federal set of exemptions (some states offer a choice between state and federal exemptions while others do not). An exemption cap exists in bankruptcy code which prevents debtors to switch to states which offer more homestead exemption in order to protect their assets. under this, you need to have owned the home continuously for a minimum of 40 months in a state to get entire equity amount exempted (as per the state’s rules).
To avail any state or federal bankruptcy homestead exemption, it is essential that you have been residing in that state for 730 days. If that is not the case, then you can apply for exemptions of the state you had been residing for a major portion of the 180 days prior to the 730-day period. To know more about exemption details, call 888-297-6023 to speak with expert bankruptcy lawyers.
You can keep your home if you are current on your mortgage payments when you file for bankruptcy and continue making mortgage payments during the bankruptcy process. However, for this to take place you need to be sure about the amount that your property is worth. From the fair market value of your home, you need to deduct your homestead exemption, the trustee’s commission, cost of sale, mortgage due on the property and all non-mortgage liens such as tax lien secured by the home. If the amount that remains is insignificant, then the trustee won’t sell your home. However, if the amount is substantial, then your home might be sold, and the money will be distributed among you (homestead exemption), the trustee, mortgage and lien holders, and the unsecured creditors.
- You could lose your home to foreclosure
Alternately, even if bankruptcy trustee does not sell your home and you are behind mortgage payments, you could end up losing your home to foreclosure. Though Chapter 7 bankruptcy can provide temporary relief from foreclosure, it does not have provision to allow debtors to catch up on arrears. If you wish to protect your home, you could either:
- Consider Chapter 13 bankruptcy, where you could catch up on mortgage arrearage and protect your home;
- Negotiate with your lender to modify the loan or get it refinanced before filing for bankruptcy.