Keeping Your Home When Filing Bankruptcy

When you have mounting bills and are struggling with your payments, then you may be thinking about filing bankruptcy. However, if you own a home, which you have worked hard for and want to keep, then filing bankruptcy can be complicated. Whether or not you can keep your home has to do with certain factors and the type of bankruptcy you are planning to file. Here are the two main factors that affect whether or not you will need to sell your home during bankruptcy.

The Type of Bankruptcy You File

Whether or not you may be able to keep your home partially depends on whether you file chapter 7 or chapter 13 bankruptcy. Chapter 7 wipes out most debt, but Chapter 13 lets you reduce or reconfigure your payments so that they're more manageable. If you're behind on your mortgage and file chapter 7, you will not be able to make up missed payments and your home could be foreclosed, usually in a matter of months.

With chapter 13, you have more room for negotiation to make up for missing payments, plus you can pay it off over several years. Whether or not you will be able to keep your home with chapter 13 depends on your income and the amount of debt. You may also be able to eliminate second or third mortgages under this type of filing.

Exemptions and the Amount of Equity in Your Home

Whether or not you can keep your home also depends on how much equity you have in it at the time of filing. A certain amount is exempt from creditors and the amount varies from state to state with some states are more generous than others. If you have too much equity, then you may have to sell off a certain amount of assets to meet your debt obligations.

Your trustee will add the costs of liquidation against the exemption amount. If the costs bring the equity below the threshold, then you are much more likely to be able to keep your home. Chapter 7 is more stringent when it comes to the exemption and you are much more likely to have your home foreclosed upon even if you are current on your payment unless you are below the threshold.

Once you file for bankruptcy, you can't cancel or stop the process, so it's important to think carefully and get all the information before you file. Talk to a bankruptcy attorney before filing to help you choose which type of bankruptcy you can file and to determine your chances of keeping your home. If you file the wrong kind, it could be detrimental.