Can you keep your home in bankruptcy?

If you are like many homeowners who live with oppressive debt, you may fear that filing for bankruptcy will cause you to lose your home. This fear may prevent you from taking the necessary measures to relieve yourself of debt and gain a fresh financial start.

Though it is true that many debtors let their homes go in bankruptcy, the truth is that bankruptcy pans out differently for everyone, and what assets filers can and cannot keep depends on several factors. According to Upsolve, when it comes to your home, the two biggest factors that will affect your ability to keep it are the type of bankruptcy you plan to file and how far behind on payments you fell.

Chapter 13 bankruptcy and your home

If the main thing holding you back from filing bankruptcy is the fear of losing your home, you may want to discuss Chapter 13 with a bankruptcy lawyer. Chapter 13 bankruptcy allows you to repay a portion of your liabilities over a period of three to five years, so long as your creditors agree to your repayment plan. If they do, you will pay the proposed amount each month to your bankruptcy trustee, who will then disperse funds to creditors in order of priority. In most cases, mortgage lenders take top priority.

If you fell behind on your house payments before filing for bankruptcy, your bankruptcy trustee will allocate a portion of your monthly payments to your past-due mortgage amount. In the meantime, you will continue to make regular mortgage payments to your lender. If you can keep up with your payment plan and current payments for the duration of the bankruptcy, you can keep your home.

Chapter 7 bankruptcy and your home

Chapter 7 bankruptcy offers debtors a true financial fresh start, as it completely wipes out most debts. Unsecured debts, such as credit card debt and medical bills, typically disappear without any consequence to you. However, if a debt is secured — which mortgage loans are — the lender can foreclose on your property once you default. There are a few ways, however, that you can avoid foreclosure and keep your home after filing for Chapter 7.

If you manage to catch up on all arrears mortgage payments before your Chapter 7 case closes, you can keep your home. However, you must stay current on payments to avoid future default. If you were not behind on your mortgage payments prior to filing for bankruptcy, you can get rid of the rest of your debts but, again, keep your home. Finally, if you meet either federal or state bankruptcy exemptions, you can protect the equity in your home and possibly prevent foreclosure.