Filing for bankruptcy can be a daunting decision. It’s laden with concerns about potential consequences, especially regarding one’s home. Many individuals worry that they will lose their house if they file for bankruptcy, but the situation is often more nuanced than it appears.
If you own a home and you’re considering bankruptcy, what should you know?
Understanding Bankruptcy Types
Two primary types of bankruptcy that individuals commonly file are Chapter 7 and Chapter 13. Each type has different implications for homeownership.
Chapter 7 Bankruptcy
Under Chapter 7 bankruptcy, your assets are evaluated and may be sold to pay off your debts.
However, there are exemptions in place to protect essential property, including your home.
The specifics of these exemptions can vary by state, but most states have a homestead exemption, which protects some, or even all, of the equity in your home. If the equity in your home is below the exemption amount, you can likely keep your house. If it exceeds this amount, the trustee may sell the home, giving you the exempted amount and using any remaining equity to pay creditors.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy works differently by allowing you to reorganize and pay off your debts over a three to five-year period.
One of the main benefits of Chapter 13 is that you can often keep your home, even if you are behind on payments. The past-due amounts can be included in your repayment plan, allowing you to catch up and retain ownership of your property. However, you must continue making your regular mortgage payments concurrently with your repayment plan contributions.
Factors Affecting Home Retention
Several factors will influence whether you can keep your home during bankruptcy, including:
- Equity in Your Home: The amount of equity significantly impacts the outcome. If your equity is within the exemption limit, you are more likely to keep your home.
- State exemptions: Each state has its own set of exemptions. Understanding these is crucial to determining your chances of retaining your home.
- Type of bankruptcy: Chapter 7 may require you to surrender non-exempt assets, while Chapter 13 provides a structured repayment plan to keep your home.
- Mortgage status: Being current or behind on mortgage payments at the time of filing also plays a role. Chapter 13 can help remedy arrears, while Chapter 7 may not provide as much flexibility.
Alternatives and Considerations
Before proceeding with bankruptcy, consider other alternatives such as loan modification, refinancing, or negotiating directly with creditors. These options could offer solutions that allow you to keep your home without the significant impacts of bankruptcy on your credit and financial stability.
Consulting a Professional
Given the complexities involved, consulting with a bankruptcy attorney can provide personalized guidance based on your circumstances. An attorney can help you understand your rights, the applicable exemptions in your state, and the best course of action to protect your home.
The fear of losing your home is understandable. However, bankruptcy does not necessarily mean you will have to part with your property. Legal advice can be invaluable, providing the clarity needed to make informed decisions and potentially safeguard your home during turbulent times.
For more information or to schedule a consultation to discuss your situation, contact R. Flay Cabiness, II, P.C. at (912) 417-5041 (Brunswick, GA); (912) 809-2141 (Hazlehurst, GA) or; (912) 324-3176 (Jesup, GA) to schedule a consultation.
