One of the risks people face when filing for Chapter 7 bankruptcy is losing assets they own, including their homes, cars, and cash. If you want to file for Chapter 7 but do not want to lose your home, you will need to make sure that you can keep it before you file. There are times when people can keep their homes in Chapter 7. Here's what you need to know.
Your Loan Payment Status Affects Your Ability
The first question your lawyer is going to ask about your home loan involves your current payment status. Have you missed any payments? If so, how far behind are you? If you are current on the loan, how is your payment history? To keep a house after filing Chapter 7 bankruptcy, you must prove that you are current on your home loan.
Whenever a person wants to keep a secured debt when filing for Chapter 7, he or she must complete a reaffirmation process. This process involves asking the lender to agree to let the person in debt keep their current loan, along with its terms, even though he or she is filing for bankruptcy. A lender will not approve this if a person is behind.
Therefore, if you are behind on your payments for your house, you will most likely not be allowed to keep the house if you file for Chapter 7. In this situation, your lawyer might discuss the possibility of filing for Chapter 13 bankruptcy instead.
The only other option you could consider is working out a loan modification plan with your lender before you file for bankruptcy. With this option, you can receive new terms for your loan and have a current status on your account, which could help you save your home in bankruptcy, but it can also be a complicated process to go through.
Your Amount of Equity Also Plays a Role
If you are current on your payments, the lawyer will look at the amount of equity you have in your home. When a person files for Chapter 7, it is likely because he or she has debts that the case will discharge. Discharging of debts eliminates these debts, leaving creditors without the money they deserve.
To compensate your creditors for the discharging of debt, the trustee in the case looks for assets you have that contain equity to seize the assets, sell them for a profit, and pay the creditors some of the money owed to them, which is why the amount of equity you have in your house affects whether or not you can keep your house.
To determine the amount of equity you have in your home, you need to know the amount you owe and the current value of the house. The difference between these amounts represents your equity in the property. In addition, your lawyer can determine if there is any amount that he or she can exempt from your house equity, which can also lower the equity amount.
If you have a lot of equity in your home, you will probably not have the right to keep it if you file for Chapter 7, but you could likely keep it if you file for Chapter 13 instead. If you have very little equity, you can most likely keep the house.
Losing a home in bankruptcy can happen, but it is not something that always happens. If you would like to find out how bankruptcy would affect your home, contact Terry E. Hurst, Attorney at Law. Our law firm can review your case and help you decide how to proceed.