Can I File for Chapter 7 Bankruptcy and Keep My Home?

Individuals or families who have debt that they cannot repay may be looking at their options for getting rid of this debt and regaining financial stability. For many, filing for bankruptcy is the best option for addressing overwhelming debt. However, debtors will want to determine the best type of bankruptcy for their situation. In many cases, Chapter 7 bankruptcy is the preferred choice, because it will allow for the elimination of outstanding debts, giving a family the fresh start they need. Chapter 7 bankruptcy may require a debtor to turn over certain assets, which will be liquidated to repay some of their debts to their creditors. Because of this, homeowners may be unsure about whether they will lose their home in a Chapter 7 bankruptcy or whether they will be required to use other options.

Understanding Exemptions in a Chapter 7 Bankruptcy

Fortunately, debtors are not required to give up everything they own to file for Chapter 7 bankruptcy. Multiple types of exemptions apply, and the amount of property that is exempt may vary depending on the state where the debtor lives. The homestead exemption applies to a certain amount of equity in a home, so if the equity a person owns falls under this amount, they may be able to keep their home.

The homestead exemption differs from state to state. In some states, it is as low as $5,000, while in others, it may be as high as $100,000 or more. To use a state’s homestead exemption, a person must have resided in the state for at least 40 months. Otherwise, the federal homestead exemption will apply. As of 2021, the federal homestead exemption is $25,150.

Homeowners will also need to meet a few other requirements to maintain ownership of their home. Typically, they will need to be current on their mortgage payments, or they must pay any past-due amounts, along with any applicable fees or penalties. A homeowner must also be able to continue making mortgage payments after completing the bankruptcy process. Fortunately, by discharging other debts, a homeowner will likely have enough financial resources to continue making mortgage payments and meeting their other financial obligations. However, if a person defaults on their mortgage either during or after the bankruptcy process and cannot become current on the payments owed, they will likely be unable to avoid the foreclosure of their home.

Contact a U.S. Bankruptcy Lawyer

While Chapter 7 may be the preferred choice of bankruptcy, it will only allow a person to keep their home in certain situations. For those who do not meet the requirements, Chapter 13 bankruptcy may be the best option for addressing their debts and taking control of their financial situation. If you are considering bankruptcy, you will want to work with a bankruptcy attorney in your area who can explain the laws, advise you of your options, and help you complete the legal process successfully.

Sources:

https://www.thebalance.com/federal-bankruptcy-exemptions-316163

https://www.law.cornell.edu/uscode/text/11/522