Can I File for Bankruptcy and Keep My House?

Can I file for bankruptcy and keep my house? We explain the straightforward facts here to help you navigate your bankruptcy accordingly.

Bankruptcy is everywhere. The United States Trustee Program oversees more than 1.5 million bankruptcy cases every year. That means one in every 200 Americans files for bankruptcy in any given year.

Many people are understandably worried about bankruptcy. They have heard stories of personal property being seized and sold at auction. They are reluctant to file for it, asking questions like, “Can I file bankruptcy and keep my house?”

Bankruptcy and property are closely linked. But keeping your home after bankruptcy papers get filed is easier than you might think.

Learn the different approaches to bankruptcy, then you can consider ways you can keep your home. Here is your quick guide.

The Basics of Chapter 7 Bankruptcy

Chapter 7 bankruptcy is one of several ways an individual can declare bankruptcy. Under this chapter, you may not have to repay any of your debt.

You must meet several qualifications though. You cannot file for bankruptcy if a previous petition was dismissed during the preceding 180 days. You must wait to file if you received credit counseling within the last 180 days.

You must also pass a means test. This test examines your disposable income and compares your annual income to the median levels in your state. If you have enough disposable cash but you are lower than the median income level, you qualify for chapter 7.

Under chapter 7, you must also give up property that you own. Your state may exempt certain things from forfeiture, including your primary residence and motor vehicle. Most states do not protect a second home, and you will lose cash and bank accounts.

Chapter 7 is sometimes called “liquidation.” This is because your property can be liquidated and sold. You may be subject to foreclosure and have your house purchased by someone else.

But you should be able to keep your home if you are current on house payments. Your trustee will then use your cash and property to pay off your creditors.

Once you’ve met the requirements, you can receive a bankruptcy discharge. This usually occurs within six months of filing for bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 is different from Chapter 7. Under Chapter 13, you are not obligated to give up any property, including second homes. You repay your debts through a repayment plan that takes several years to execute.

But a portion of your home equity is non-exempt. You must pay off that non-exempt amount. There is no cap on this, so you may have to pay a substantial amount of money.

To file for chapter 13, you must have a regular income. Your unsecured debts must be less than 400,000 dollars total.

In your application, you must provide an asset schedule and a schedule of your current income. You should also provide your case trustee with your tax returns.

Filing your petition creates an automatic stop on collection actions against your property. This gives you time to stop foreclosure and remain in your home. But this stay is temporary and you must bring your past-due payments current as soon as possible.

You may receive a hardship discharge. This applies to individuals who cannot complete their payment plan due to circumstances beyond their control. Becoming disabled after an accident is one common cause of such a discharge.

Once you have made all payments owed, you can receive a discharge.  A discharge releases you from the debts covered in your repayment plan and gives you control over your house. Additionally, you may need to take a financial management class.

How to Keep Your Home After Bankruptcy

The best way to keep your home is to never file bankruptcy. Make your mortgage payments on time. When times are good, make additional or larger-than-normal payments.

When you are considering bankruptcy, talk to a financial advisor. Get a good overview of your assets and debts. Brainstorm any ways you can to pay off what you owe.

You should then talk to a bankruptcy lawyer. Review your options with them and decide what your general repayment plan will be.

Chapter 13 bankruptcy is best for keeping your house. But Chapter 7 may be a good option if you want to pay off your debts as soon as possible.

Review your state laws for homestead exemption. You and your attorney will need to file for it, so make preparations for that in advance.

During the bankruptcy process, you can remain in contact with your creditors. Touch base with them and make sure they don’t make any overtures to take your house from you.

Focus on paying off your mortgage and housing debts first. That will ensure that you can stay in your home. You can use those payments as a launching point to pay off your other debts.

See if you can earn extra money by taking on a side hustle or working overtime. Be sure to sell off property you don’t use and put the money toward your bankruptcy payments.

After all your debts are paid off, take some time for yourself. Think about what got you into bankruptcy. Then do whatever is possible to avoid making the same mistakes.

“Can I File Bankruptcy and Keep My House?”

Bankruptcy lawyers are often asked, “Can I file bankruptcy and keep my house?” The answer may surprise you.

Chapters 7 and 13 let you keep your home. Some residential equity may become liquidated, but you can stay in your house. Under chapter 13, foreclosure proceedings are temporarily stopped.

Talk with a financial advisor about what you should do. Make a repayment plan that lets you pay back home debts first. Make extra money however you can, including by selling property.

Husker Law is Omaha’s leading bankruptcy law firm. We will fight for you.

Call us today at (402) 415-2525 for a consultation.