Can I Keep My House if I File for Bankruptcy in Virginia?

Virginia homeowners are likely to lose their homes in Chapter 7 bankruptcy.

Bankruptcy in Virginia can pose some risk of loss for your home, even if it is your primary residence and you don't have a mortgage. In fact, a mortgage could help protect your home as long as you remain current on the payments. Generally, Virginia law protects only up to $5,000 in home equity.

Chapters

Virginia homeowners filing for Chapter 7 bankruptcy are at serious risk of losing their homes, but those filing Chapter 13 bankruptcy have no risk of loss. Chapter 13 bankruptcy, unlike Chapter 7, does not involve liquidation. Liquidation is the procedure that exposes your house to risk of loss. A bankruptcy trustee assigned to your case has a legal duty to liquidate your assets in order to raise money to pay off your debts. Because this does not occur in Chapter 13, there is absolutely no risk of home loss in Chapter 13 bankruptcy in Virginia.

Homestead Exemption

Even in Chapter 7 bankruptcy, a Virginia homeowner is not guaranteed to lose his home, but it is fairly likely to occur. Homes are somewhat protected in Chapter 7 bankruptcy by a homestead exemption. Essentially, this means the home is exempt from the liquidation process, but only up to a certain amount of value. In Virginia, the base homestead exemption is equal to $5,000. The Virginia homestead exemption is among the lowest exemption amounts of any of the states. Florida, for example, grants a homestead exemption in an unlimited value, so there is zero risk of loss to liquidation. This is a frustrating reality for homeowners filing bankruptcy in Virginia.

Additional Exemption

In addition to claiming the $5,000 base homestead exemption, Virginia homeowners can also claim an additional $500 in exemption per dependent living in the house. A homeowner with four dependent children can claim $7,000 in total homestead exemption, while a single homeowner with no dependents can claim only $5,000.

Equity

The formula for determining whether you will lose your home involves comparing your home equity to the Virginia homestead exemption. Your home equity is generally the fair market value of your home minus any outstanding mortgages on your property. So, if you claim the base $5,000 exemption and have $50,000 in home equity, then the trustee will sell your home, give you $5,000 cash, and use the remaining $45,000 to pay off some of your debts.

References

• "The New Bankruptcy: Will It Work For You?"; Stephen Elias; 2009