Do you lose your house when you file bankruptcy? This is a common question that many individuals contemplating bankruptcy have. The answer to this question is not straightforward and depends on various factors, including the type of bankruptcy you file and the laws in your state.
When you file for bankruptcy, you may be concerned about losing your most valuable asset, your home. However, it is important to understand that bankruptcy is designed to provide debt relief while also protecting certain assets. In most cases, you can keep your home during bankruptcy, but there are exceptions.
Chapter 7 bankruptcy is a liquidation bankruptcy that involves selling off non-exempt assets to pay off creditors. In many states, your home is considered an exempt asset, meaning you can keep it even if you file for Chapter 7 bankruptcy. However, if the equity in your home exceeds the state’s exemption limits, you may be required to sell a portion of your home to pay off your creditors.
On the other hand, Chapter 13 bankruptcy is a reorganization bankruptcy that allows you to keep your assets, including your home, while developing a repayment plan to pay off your debts over a period of three to five years. As long as you continue to make your mortgage payments and adhere to the repayment plan, you can retain ownership of your home.
It is also important to consider the automatic stay that is put into effect when you file for bankruptcy. This stay prevents creditors from taking any action against you, including foreclosure. This gives you an opportunity to work out a solution with your creditors or to modify your mortgage terms to make them more manageable.
However, if you are unable to keep up with your mortgage payments and your home goes into foreclosure, bankruptcy can help you in several ways. For instance, you may be able to file for a hardship discharge, which would allow you to eliminate your mortgage debt. Alternatively, you may be able to negotiate a short sale or deed-in-lieu of foreclosure with your lender, which would allow you to sell your home for less than what you owe or transfer ownership to your lender without going through foreclosure.
In conclusion, whether you lose your house when you file bankruptcy depends on various factors, including the type of bankruptcy you file, the equity in your home, and your ability to keep up with your mortgage payments. It is essential to consult with a bankruptcy attorney to understand your options and to determine the best course of action for your specific situation.
