Should I File for Chapter 7 or Chapter 13 If I Want to Keep My Home?

Find out whether you can keep your house in Chapter 7 or Chapter 13 bankruptcy.

It ‘s possible to keep a house when you file for bankruptcy, but the circumstances must be right, and you ‘ll need to be sure that you meet the requirements of the chapter you file. For example :

  • Chapter 7 filers must be current on payments and protect all home equity with a bankruptcy exemption.
  • Chapter 13 filers behind on a mortgage can catch up on missed payments and keep the house.

Read on to learn what you ‘ll need to do to keep a house in bankruptcy Chapters 7 and 13 .

You Must “Exempt” Your Home Equity to Keep a House in Chapter 7 or Chapter 13 Bankruptcy

start by determining whether you can protect all of your home equity in bankruptcy.

You must complete this critical step in chapter 7 and chapter 13 because, in both bankruptcy chapters, you can protect or keep assets when a bankruptcy exemption covers the fairness measure .
Each submit has a list of exemptions, so the property type and amount of equity you can protect using country exemptions will vary widely. merely a few states let you keep all of your home fairness when you file for bankruptcy. Most states have a much lower “ homestead exemption. ”
here ‘s how the homestead exemption works in Chapters 7 and 13 .

Protecting a House With an Exemption in Chapter 7 Bankruptcy

Suppose the exemption is n’t adequate to cover all of your home equity. In that case, the chapter 7 court-appointed regent will sell your sign of the zodiac. With the proceeds, the trustee will pay off the mortgage, give you the homestead exemption sum, and deduce sales costs and the trustee ‘s fee. The regent will use the remaining sum to pay other debts .

Protecting a House With an Exemption in Chapter 13 Bankruptcy

chapter 13 bankruptcy works differently. rather of giving up property you ca n’t protect with an exemption, you ‘ll pay for the nonexempt dowry in your design .
Of course, this could get expensive if you have significant taxable equity. If you ca n’t prove you have enough income to pay the house ‘s taxable equity and other compulsory amounts, the bankruptcy motor hotel wo n’t approve or “ confirm ” your plan .

Example. You have $ 50,000 in equity in your house, but the maximum amount you can exempt is $ 30,000. You ‘ll have to social organization your chapter 13 payment plan so that your unbarred creditors will receive at least $ 20,000 over the life of the plan. That sum is in summation to any other debts your plan requital must cover, like mortgage arrearages and car payments .

But being able to protect or pay for your home fairness is n’t adequate to keep your house in bankruptcy. You ‘ll have early requirements you must meet, as well .

Keeping Your House in Chapter 7 Bankruptcy

A chapter 7 bankruptcy is often more attractive than chapter 13 because it ‘s simpler and gets you on the road to fiscal constancy preferably. Most chapter 7 cases are over in about four months because, unlike chapter 13, filers do n’t pay into a three- to five-year refund design.

however, because chapter 7 does n’t help you manage mortgage debt, keeping a house in chapter 7 bankruptcy can be more challenge .

  • If you’re behind on payments, the lender will use its lien rights to foreclose on the home after asking the court to lift the automatic stay or wait until the bankruptcy case ends.
  • If you have nonexempt equity, the bankruptcy trustee will sell the house and use the proceeds to pay other creditors.

To keep your house in chapter 7, you ‘ll need to meet the come criteria :

  • You’re current on your house payments.
  • You can protect all of your home equity with a bankruptcy exemption (see above).
  • You’ll be able to continue making your payments in the future.

If you ca n’t meet the requirements, Chapter 13 bankruptcy will be a better choice. The chapter 13 refund design lets you address past-due payments and taxable equity and keep the house. chapter 13 might besides allow you to get rid of a second or one-third mortgage using a spleen stripping operation ( more below ) .

Chapter 13 Bankruptcy and Past-Due Mortgage Payments

If you ‘re behind on your mortgage payments and want to keep the family, chapter 13 bankruptcy provides a mechanism for helping you get caught up, something that chapter 7 bankruptcy ca n’t do .

Propose a Repayment Plan

In Chapter 13 bankruptcy, you propose a refund design that will allow you to pay your creditors over three to five years. You can treat your mortgage arrearage as a separate debt and add it to your payment plan .

Show You Have Sufficient Income

Using the chapter 13 design to catch up on your arrearages will only work if you have the income to make both your regular monthly mortgage payment and your design requital while you ‘re in bankruptcy .
once you ‘re in chapter 13, the mortgage holder ca n’t foreclose if you ‘re paying your house and plan payments on meter and keeping to your mortgage terms, like ensuring that you have homeowners policy in space .

Using Chapter 13 Bankruptcy to Remove Junior Liens From Your House

If you have a irregular or another junior spleen on your homestead, you might be able to get rid of it through a work called “ lien denudation. ” Lien strip is available only in a chapter 13 sheath and entirely when your place is worth less than the primary loan libra .
To strip the spleen, you ‘ll have to file a motion in the bankruptcy court and award attest on the property ‘s value and the mortgage loan balances. If the court voids the junior spleen, you ‘ll pay it with early unbarred debts, and any remaining counterweight will get wiped out at the end of the case.

Learn about spleen plunder and getting rid of second mortgages in chapter 13 bankruptcy .

Need More Bankruptcy Help?

Did you know Nolo has been making the law easy for over fifty years ? It ‘s true—and we want to make sure you find what you need. Below you ‘ll find more articles explaining how bankruptcy works. And do n’t forget that our bankruptcy home page is the best place to start if you have other questions !
We wholeheartedly encourage research and determine, but on-line articles ca n’t address all bankruptcy issues or the facts of your character. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer .

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