Bankruptcy Blog

Can I Keep My House if I File Bankruptcy?

If you own a home but are in severe financial trouble, you’re probably wondering, can I keep my house if I file bankruptcy? You might, depending on many issues. How much equity do you have in the home? Are you behind in mortgage payments? What chapter of the bankruptcy code will you use?

Jerry E. Smith is a bankruptcy attorney who helps clients like you. He’s a Certified Public Accountant (CPA) who works to get the best results for those behind in their debts. Our firm has been helping those with financial problems since 2009, and we can help you, too. When “If I file bankruptcy, what happens to my house?” is an issue you face, call him at (317) 917-8680 for a free one-hour consultation.

Can You File Bankruptcy and Keep Your House?

Depending on the circumstances, you may keep your house to eliminate other debts.

Bankruptcy is a way to get a fresh financial start, which may or may not result in the loss of your home equity. Some obligations, like taxes, child support, alimony, and, in most cases, student loans, aren’t discharged in bankruptcy. For your other debts, a bankruptcy discharge means you need not pay them.

  1. What is bankruptcy?

    Filing for bankruptcy protection can help a person or a married couple by eliminating debt and/or creating a plan to repay it. Bankruptcy cases are heard in federal court. They’re based on the US Bankruptcy Code but are impacted by state law. You can use different types of bankruptcies, usually referred to by their chapter in the code. Which one is right for you depends on your circumstances and goals.     

    Individuals may use Chapter 7 or Chapter 13 bankruptcy. Can you file bankruptcy and keep your house? Each handles home equity differently. Generally, Chapter 7 involves selling assets to pay debts, while Chapter 13 relies on a payment plan to help people get their debt under control.

  2. What is a homestead or bankruptcy exemption?

    You may retain your equity in the property up to an exemption in state law. You’ll lose the equity over that amount in a Chapter 7 filing or pay for it in a Chapter 13 repayment plan. Under state law, up to $19,300 in equity is protected for real estate owned by a single person, $38,600 in equity if spouses own the property and are jointly filing for protection. It applies to your residence, whether that’s a single-family house, condominium, trailer, or farm.

  3. How does Chapter 7 bankruptcy work?

    In a Chapter 7 bankruptcy, the bankruptcy trustee appointed by the court to handle your financial affairs organizes and sells assets considered “nonexempt” under the Bankruptcy Code. The proceeds pay your creditors based on priorities spelled out in the code. Chapter 7 allows you to keep property “exempt” under the code (including the amount of equity in your home under state law). The trustee sells remaining assets, if there are any nonxempt from the bankruptcy.

How does Chapter 13 bankruptcy work?
A Chapter 13 bankruptcy (also known as a wage earner’s plan) allows you, if you have a steady income, to come up with a plan to pay all or part of your debt. If the court accepts it, you will make these payments over the next three to five years. During this period, creditors can’t begin or continue collection efforts. Through this chapter, you may protect your home if it’s in the foreclosure process.

If I File Bankruptcy What Happens to My House?

That may depend on which chapter you use.

  • Chapter 7: This will be more helpful if you’ve kept up with your mortgage payments but haven’t developed equity up to the exemption amount. If you’re in financial trouble, but you focused on paying for your home while other debts and obligations piled up, this may be a good option. You must also be able to continue to make mortgage payments in the future.
  • Chapter 13: If you’re not current on your mortgage payments but want to keep your home, Chapter 13 may help you catch up. You’d need to keep up with your mortgage debt and your repayment plan. For many bankruptcy debtors, most of their obligations are considered nonpriority unsecured debt (there’s no property used as collateral to pay the debt). When they’re discharged, it’s easier to pay your mortgage. Some of those debts include credit card debt, medical debt, utility bills, and most lawsuit judgments against you. If you can’t make your payments, your case will convert to Chapter 7, and you’ll lose your home equity beyond the exemption amount

Chapter 7 may be the better option if you’re a good fit. Many homeowners try to keep their house through Chapter 13, but often the payments are too much for them to handle. If you’re disciplined and face no other financial problems during the plan’s payment period (like a job loss or unexpected medical bill), you may be able to make it through and keep your house.

The Right Bankruptcy Lawyer May Be the Difference

If you have equity in a home you want to keep, but paying all your bills has become impossible, bankruptcy lawyer Jerry E. Smith will treat you with respect, discuss how the law may apply, answer your questions, and suggest your best options. Call us at (317) 917-8680 for a free one-hour consultation today. Weekend and evening appointments are available.