Can I Keep My Home in Chapter 11 Bankruptcy?
What happens to your home in bankruptcy depends mostly on the laws of your state, and what Chapter of bankruptcy you file under. Under Chapter 11 bankruptcy, you can keep as much of your home as the court approves in your reorganization plan. The same is true under Chapter 13. Under Chapters 7, the amount you keep depends on the "homestead exemption" in your particular state.
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Chapter 11 Generally
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Chapter 11 bankruptcy is not a common form of bankruptcy for individual consumers. Instead, Chapter 11 is more commonly used by businesses needing time to pay off debts and to reorganize for future profitability. Chapter 11 is often a complex, time-consuming process, and attorney's fees can easily reach or exceed $100,000.
Chapters 7 and 13 Generally
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Most individuals should file bankruptcy under either Chapter 7 or Chapter 13. Both of these Chapters are better-suited for individuals, and attorneys fees can be much less, even down to as low as $1,500 or less for a simple bankruptcy. Chapter 7 is liquidation bankruptcy, where you essentially sell off as much property as you can, then use that money to pay as many debts as possible, and then all your remaining debts are discharged and you can start over financially. Chapter 13 is less severe and is commonly referred to as debt adjustment or reorganization bankruptcy. Chapter 13 is a great option if you can repay your debts with more time.
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Chapter 11 Reorganization Plan
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If you decide for some reason to file under Chapter 11 as an individual, you will have to present a reorganization plan to the bankruptcy judge. The judge has broad discretion on the approval of your plan. If you put into your plan that you will keep your home, and the judge approves that plan, then you will be able to keep your home. More likely, though, you will have to sell your home and you will be able to keep a portion of the equity (the difference between what your home sells for and what you owe on the home) and you will have to use the remaining equity to pay off debts and creditors.
Chapter 13 Plan
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Individuals are more likely, and typically much smarter, to file under Chapter 13. The practical aspects of Chapter 13 are very similar to Chapter 11. Under Chapter 13, just as under Chapter 11, you will present a plan to the bankruptcy judge, and as long as the judge approves the plan, you will be able to keep your home.
Chapter 7
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Under Chapter 7 bankruptcy (the most common form of bankruptcy for individual debtors), the amount of equity in your home that you can keep depends on the laws of your state. Some states allow you to keep up to $500,000 worth of home equity, while other states don't allow you to keep any. The amount of money you can keep is commonly referred to as the "homestead exemption" and you will need to check your state's laws to determine how much your homestead exemption is. You will most likely have to sell your home, pay off all mortgages and liens on the home, pay yourself the homestead exemption amount, and then put the rest of the sales proceeds into your bankruptcy estate. That money (the excess equity) will be used to pay off as many of your creditors as possible.
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