Are you considering filing for bankruptcy, but have concerns about losing your home? You are not alone. Many people in your shoes have similar concerns, but you should know that filing for bankruptcy does not automatically result in the loss of your home.
Instead, several factors come into play when determining whether you keep your home, and one of the most significant is the type of bankruptcy filing you make. Most people who file for personal bankruptcy do so through either a Chapter 7 or Chapter 13 format.
When you file for Chapter 7
To qualify for a Chapter 7 bankruptcy, you must prove that you do not have enough income at your disposal to pay back the debts you owe. When you file for bankruptcy using this method, you may have to sell off any assets that are “non-exempt,” meaning the bankruptcy filing does not protect them.
Whether your house falls under this umbrella depends on how much non-exempt equity you have in it. Once you determine this amount, you must compare it against the exemption amount currently allowed in California. If the state’s exemption amount exceeds your equity, you may have a better chance of keeping your home. Whether you are current on your mortgage may also influence the court’s decision to exclude your home in a Chapter 7 bankruptcy.
When you file for Chapter 13
While this is not definitive, you may be more likely to stay in your home when you file for a Chapter 13 bankruptcy. In most cases, any amount you owe on your home becomes part of your repayment plan. So, as long as you stick to that plan and otherwise remain current on your mortgage payments, you should be able to keep your home.
Keep in mind that staying in your home may not always make financial sense. If you owe more than your home’s value or could find a more affordable property to rent elsewhere, you may want to consider these options.