Can You Lose Your Home After Filing Chapter 7 in Michigan?
Filing a Chapter 7 bankruptcy does not mean automatically losing your home. Whether you can keep your home in a Chapter 7 case in Michigan depends upon how much equity you have, whether you choose federal exemptions or Michigan exemptions, whether you can afford the mortgage payments and whether you are current on the mortgage.
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Are You Current on Your Mortgage Payments?
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Section 524 of the Bankruptcy Code requires you to be current on your payments to a secured creditor before you can agree to remain responsible on the debt after your bankruptcy. A secured creditor is a creditor with an interest in property to secure the loan. A mortgage loan is a secured debt, and your mortgage company is a secured creditor. If you are not current on the loan, the court may not allow you to reaffirm the mortgage debt.
Can You Afford Your Mortgage, and Is the Payment Reasonable?
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If you are current on your mortgage, you must still show the court that your monthly mortgage payment is affordable and reasonable. The court will review your budget and determine whether keeping your house will cause you a hardship and whether your mortgage payment is reasonable for your circumstances.
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Does Your Home Have Equity?
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Equity is the difference between what your house is worth and how much you owe on it. If your mortgage balance is $120,000 and your property is worth $150,000, you have $30,000 in equity. Equity is a property interest; you own the equity in your house. When you file Chapter 7, all your property becomes the bankruptcy estate's property, and you must exempt the property to prevent the bankruptcy trustee from seizing and selling the property. To protect your home equity, you must exempt it.
Can You Exempt Your Home Equity?
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Exemptions are your legal right to keep property out of the hands of creditors. Section 522 of the Bankruptcy Code, which is federal law, lists property you can exempt from the bankruptcy estate. As of January 2011, Section 522(d)(1) states that you can exempt up to $21,625 in equity in a home you use as your residence. Section 522 also permits you to choose your state's exemption laws instead of the exemptions listed in the Bankruptcy Code. If your home has more than $21,625 in equity, you can elect to use Michigan's exemption statute. Michigan Compiled Laws Section 600.5451(1)(a)(n) provides that you can exempt up to $30,000 in equity in your home, or $45,000 in equity if you are 65 years of age or older. If you are married and you own your property as tenants by the entirety, you can protect all of your equity unless most of your debts are joint with your spouse.
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