Can I Keep My House If I File Chapter 7?
If you file Chapter 7 bankruptcy, all of your assets may be subject to seizure, including your home. The value of your home and the state you live in are two of the main factors in whether or not you can keep your home. While your house may survive a Chapter 7 bankruptcy, you may still face foreclosure proceedings after your bankruptcy case concludes.
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Exemptions
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Exemptions define the value and type of assets you may retain after a bankruptcy case is over. Each state has the power to define its own exemptions; and while the categories among the states are typically very similar, the exemption amounts can be very different. For example, the state of Florida offers an unlimited homestead exemption, meaning you will not have to surrender a home of any value in a Chapter 7 case in Florida. States such as Tennessee, on the other hand, have only a $5,000 homestead exemption if you are a single filer. Exemption amounts reflect the net value of the property less the amount that you still owe on it; so if you owe more than the property is worth, you can typically keep your home through bankruptcy (see Resources).
Foreclosure
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While bankruptcy may offer a temporary reprieve from the collection efforts of home lenders, if you are behind in your payments, regular foreclosure proceedings will ultimately begin. Unlike unsecured debt, such as credit card debt, which is generally discharged in a bankruptcy, home mortgage debt is a secured debt. The amount you owe the mortgage company is collateralized by the value of your home. As a result, although the obligation to pay is eliminated in bankruptcy, the lien against your house survives. You may no longer have to pay the debt, but the mortgage company has the right to take your house.
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Reaffirmation
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If you have the money and want to keep your home, you can keep making your mortgage payments. Reaffirmation is the process whereby you sign an agreement with the lender validating the existing mortgage debt. Essentially, you are promising to pay the lender even though your obligation to pay was dismissed through your Chapter 7 bankruptcy. If you default on your mortgage after signing a reaffirmation agreement, you are still liable for the debt and are not protected by your bankruptcy discharge.
Chapter 13
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If Chapter 7 bankruptcy does not protect your assets as you would like, you can consider filing Chapter 13 bankruptcy instead. Chapter 13 is a payment plan in which your creditors receive payments for up to five years while your assets are protected from attachment. If you are behind on your mortgage payments, you can arrange to pay off any past-due amounts through the payment plan and get current.
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References
- United States Courts: Bankruptcy Basics
- Bankruptcy in Brief: Chapter 7
- Bankruptcy in Brief: Can I Save My House From Foreclosure?
- Nolo: Your Home in Chapter 7 Bankruptcy
- United States Courts: Chapter 13 -- Individual Debt Adjustment
- Bankruptcy in Brief: Exemptions: What Can I Keep If I File Bankruptcy?
