May 14, 2020

As one of the largest property investments people make, homes can be a serious concern when it comes to knowing what property you will be able to keep when you file for bankruptcy. 

Will I be able to keep my house? Does a bankruptcy trustee have a right to sell my home? What exemptions do I have?

These are all valid questions. Home protection varies from case to case depending on which chapter you file for, the amount of equity on your home and what you owe. However, there are some basic guidelines to understand what can happen in a bankruptcy filing.

If you’re not sure if your home is protected against creditors, read this article and get in touch with specialized lawyers to understand your bankruptcy options. 

The Difference Between Chapter 7 & Chapter 13

Chapter 7 bankruptcy, also known as liquidation, is typically used to relieve the debts of those with a very limited income. This short-term plan allows filers to have a financial fresh start. During this filing process, you liquidate all your unprotected or non-exempt assets to pay off your debt. These assets are any property that maintains an equity value and can be sold to creditors to pay off debts.  However, if you have very little equity in your home you will most likely be able to keep your house along with most if not all of your other property.  If filing a Chapter 7 bankruptcy puts you at risk of losing any of your property, then Chapter 13 bankruptcy may need to be considered.

Chapter 13 Wage Earner’s Plan is used for people who still have a steady income but have fallen behind on payments or have found themselves unable to pay a large portion of their secured and unsecured debts.  Chapter 13 is also considered if you have too much equity in your house.  Some people have to file Chapter 13 because they earn too much income or have too much money left over each month.

This chapter focuses on repaying the creditors over a 3-5 year plan. This long-term alternative will clear your financial slate when the plan is successfully completed.  Depending on how much you earn, how much you have left each month after paying your normal bills (rent, utilities, food, clothing, etc.), or how much equity you have in your house will determine how much of your debt has to be paid back in Chapter 13.

As for your property, Chapter 13 generally protects your property but, again, will require a stable income to pay off your debt within the duration of the repayment plan. Chapter 13 works with creditors to create this 3-5 year wage earner’s plan to cover debts.

Can I Protect my Home Under Chapter 7 or Chapter 13? 

Chapter 7

The only way to protect your home under a Chapter 7 filing is if you:

  • Are current with your house payments
  • You have very little if any equity in your home (equity is the difference between the value of your home vs. how much you owe on the mortgage).

Under Virginia state bankruptcy exemptions, a filer has what is called a Homestead Exemption to use up to $5,000 to protect any non-exempt property.  The $5,000 is a lifetime exemption, meaning if you file bankruptcy again in the future, you will only be able to use the part of the $5,000 that was not already used.  It can be used to protect money in the bank, stocks, etc.  Sometimes if you have a small amount of equity in your house, we use part or all of the $5,000 to protect that equity.

There is an added exemption of $500 to each dependent in the household that is protected under the bankruptcy exemption laws in Virginia. For disabled and over 65 year old debtors have an exemption of up to $10,000 in equity. 

Chapter 13 

If you file under Chapter13 bankruptcy, you have the ability to catch up with mortgage payments in your repayment plan and it will be unlikely that you will lose your home provided you make all of your mortgage payments after your bankruptcy is filed.

 As long as you keep up with your payments, creditors cannot take your home from you in this chapter.

Hire a Qualified Lawyer

Each bankruptcy case varies. The best thing to do to ensure you have the greatest chance to keep your home is to get in contact with bankruptcy lawyers.

Qualified counselors such as those at Cravens & Noll Bankruptcy Firm have handled hundreds of bankruptcy cases, specializing in this area of law. If you are considering bankruptcy, please give us a call today!

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