If you own a home, it’s likely the first thing on your mind when considering filing for bankruptcy. You wonder if the bankruptcy court will take away your house.
The answer to what happens to a house in Chapter 7 bankruptcy depends on several intertwined factors.
Typically, if any equity in the house qualifies for exemption, and you can make the payments, you can keep your house.
How do I know if my equity is exempt?
If, after subtracting an exemption, you have no equity left over, the trustee won’t try to sell your house to pay off your other debts. It’s the bankruptcy trustee’s job to find assets that will generate cash with which to pay creditors – if there’s no cash to be generated, they won’t “take” your property just to be punitive.
To figure out if you have any non-exempt equity, take the current market value of your home, and subtract the following three things:
- Any debts secured by the property;
- Exemptions that apply; and
- The estimated cost to sell the house.
If the answer to that equation is zero or a negative number, you get to keep your house.
If the answer is a significantly positive number, then consider filing Chapter 13 instead.
After filing for bankruptcy, I can easily afford my mortgage payments. So can I keep my house?
While a Chapter 7 discharge gets rid of the lender’s ability to sue you for the mortgage
amount, it doesn’t take away their lien on your house.
Therefore, your mortgage lender could still foreclose on your house after your bankruptcy case if you don’t make your payments.
In 99% of cases, the mortgage lender wants you to stay in the house and keep paying your mortgage. That is a far preferable outcome for them than having to foreclose.
If you’re behind on payments, consider Chapter 13 as a possible way to keep your house.
So I can keep my house. But should I?
The same calculation that leads to you keeping your house safe from the bankruptcy trustee (zero or negative equity after costs), may cause you to realize that your house is more of a burden than an asset. Perhaps you have negative equity (upside down) because there’s been a crash in real estate prices. Or maybe you could rent comparable housing for less than paying the mortgage and keeping up the insurance, taxes, and maintenance on the house.
As part of your fresh start, you may want to take a hard look at the numbers and decide whether you feel lighter with, or without the house. Home is, after all, where you should be able to sleep well at night, unbothered by financial worry.
Can you help me figure out if my house is safe before I file bankruptcy?
Sure I can! It’s free to chat with me about your options – you can call or text me at 215.551.7109, or drop me a line.