Can I Keep My House in North Carolina If I File Chapter 7?
If your home equity is less than the North Carolina state homestead exemption, then you will be allowed to keep your house in a Chapter 7 bankruptcy. The North Carolina homestead exemption is just $18,500. Additionally, if you don't make your mortgage payment,s then your lender can foreclose and take your house even if you file Chapter 7 bankruptcy.
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No Federal Exemption
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The federal exemption for a house is $22,500, which is higher than the North Carolina state exemption. Many states allow bankruptcy filers to select either the state or the federal exemptions. In North Carolina, however, the federal exemptions are not an option, so you are stuck with the lesser North Carolina state homestead exemption.
Equity Comparison
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To analyze whether you can keep your house in a Chapter 7 bankruptcy, you must compare your home equity to the state homestead exemption. If you don't have a mortgage on your home, then your home equity is simply the current fair market value of your home. If, like most people, you have a home mortgage, you will need to calculate your equity by subtracting your outstanding mortgage balance from the current fair market value of your home. You then compare your equity to the homestead exemption. If your equity is less than the exemption, the bankruptcy trustee cannot take your property. But, if your equity is higher than the exemption, the trustee can sell your house and simply give you cash equal to the homestead exemption.
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Foreclosure
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Chapter 7 bankruptcy does not eliminate the possibility of foreclosure if you are in default on your mortgage loan. Chapter 7 bankruptcy does not eliminate the mortgage lien that your lender house on your home, which means if you don't make your payments, the lender can foreclose on the lien and sell your home.
Reaffirmation
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To avoid losing your home to foreclosure after bankruptcy, you may want to reaffirm your mortgage as a part of your Chapter 7 proceedings. To reaffirm means to agree to abide by the original mortgage agreement. Bankruptcy complicates mortgages, and sometimes give lenders the authority to foreclose even if you stay current on your payments. Reaffirmation protects you by reinstating the mortgage loan and prohibiting the lender from foreclosing as long as you make your payments on time.
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References
- Photo Credit North Carolina state contour against blurred USA flag image by Stasys Eidiejus from Fotolia.com
