How to Keep Your House in Bankruptcy

Bankruptcy attorneys tell us that this is often the first question that they are asked, "Can I Keep 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.

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.

For example, if your home has a fair market value of $100,000 and you owe $80,000 on your mortgage, the equity in the home is $20,000. That's $100,000 - $80,000 = $20,000.

For example, if your home has a fair market value of $250,000 and you owe $150,000 on your mortgage, the equity in the home is $100,000. That's $250,000 - $150,000 = $100,000.

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).

For example, if you are a Florida resident, your homestead exemption is unlimited. This means so long as you can make the requisite payments, you can keep your house no matter how valuable. If you own a $1 million home outright, you can keep it and file bankruptcy successfully.

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.