Bankruptcy offers people a chance for a new start. However, it usually comes with its own burdens. There is the limitation as to how much you can borrow. There is the “bankrupt” label that may ruin your reputation. And there is also the risk of losing your valuable possessions. However, losing your home can be the most devastating effect of bankruptcy. This is so especially if you have a family. Here is why you can still end up holding on to your house even after filing for bankruptcy.
Going for chapter 7 and hoping for the best
Filing a chapter 7 bankruptcy completely wipes most of your debts. Unlike a Chapter 13 bankruptcy where you have to work on a repayment plan, a Chapter 7 filing simply guarantees that you are free from any legal obligations of having to pay most of your debts. You may still have to pay your taxes and a few other debts, but you won’t have to worry about your creditors. Unfortunately, this also means that you will have to part with most of your assets. This includes the equity in your house.
However, if you have little to no equity in your house, it may not make financial sense for the trustee to come after your house. You may therefore get to keep your house while at the same time end up benefiting from all the advantages of a Chapter 7 bankruptcy.
It is important to note that this is a purely discretionary effect. It all depends on what the bankruptcy trustee thinks is reasonable. Also, in order to keep your house, you will still have to make your regular mortgage payments.
Taking advantage of exemption amounts
To make the bankruptcy process less punitive, most states usually provide for exemption amounts. Any equity in a home that falls below this amount is usually exempt from the liquidation process of Chapter 7. Therefore, if for example you live in New York, you get to enjoy exemption amounts on homesteads that vary between $75,000 and $150,000. Taking advantage of these bankruptcy-only exemptions can therefore help you keep your home.
Filing a Chapter 13 bankruptcy
A chapter 13 bankruptcy does not give you as clean a slate as the one that comes with Chapter 7. It is a form of manageable financial repayment plan that gives you enough breathing space to enable you to meet your financial obligations. This includes your mortgage. You are therefore assured of holding onto your home if you choose this bankruptcy option provided you keep your end of the bargain.
For more information, contact Philip L. Burnett, Attorney At Law or a similar legal professional.