Can You Keep Your Home If You File for Chapter 7 Bankruptcy in Missouri?
Chapter 7 bankruptcy is a drastic legal remedy available to individual debtors. Chapter 7 involves a liquidation process, which means a bankruptcy trustee will try and sell as much of your property as possible in order to pay off as many of your debts as possible. Your home may not be safe under a Chapter 7 liquidation bankruptcy in Missouri.
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Mortgage
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Whether or not you have a mortgage on your home affects whether you can keep your home under Chapter 7. A mortgage consists of a promissory note and a security document called the mortgage. Under the promissory note you promise to repay the money borrowed, and under the security document, or mortgage, you give the lender the right to foreclose on your home if you don't repay the promissory note. Chapter 7 bankruptcy will discharge your personal obligation on the note, but will not remove the mortgage lien. This means that if you default on your mortgage the lender can still foreclose on the lien granted under the mortgage.
Liquidation
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You also risk losing your home as part of the liquidation process in a Chapter 7. Liquidation means that the bankruptcy trustee will sell all of your non-exempt property that you owned up to date you filed for bankruptcy. In Missouri, only a portion of your home is considered exempt. If your home value exceeds the exemption then the trustee will sell your home.
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Exemption
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Under Missouri law, a debtor can claim up to $15,000 in home equity as an exemption. This is called the Missouri "homestead exemption." This means if you own your house free and clear of a mortgage, and your house is worth $15,000 or less than you will be able to keep your home because the home is fully exempt. However, if the value of the home exceeds $15,000 then the bankruptcy trustee will sell your home and then give you $15,000 cash to use towards the purchase of a new home.
Value
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To properly analyze whether or not you can keep your home, you need to determine your value in the home, which is generally your equity in the home. If you own the home free and clear of any mortgage loans, then the value of the home is simply the amount for which the home would sell on the open market. But, if you owe a mortgage on the home, your equity is equal to the current fair market value of the home minus the current outstanding balance on the mortgage. If your equity is greater than the exemption amount ($15,000) than the trustee will sell your home and cash out the $15,000 equity. But, if your equity is less than $15,000, you will be able to keep your home as long as you remain current on the mortgage payments.
Expert Insight
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If your home equity exceeds the Missouri homestead exemption, then you should consider Chapter 13 instead of Chapter 7. Chapter 13 does not involve a liquidation process, but instead involves the preparation and fulfillment of a debt repayment plan over three to five years. There is no risk that you will lose your home in a Chapter 13 bankruptcy, no matter how much equity you have in the home.
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References
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