Can I keep my house if I file bankruptcy?

There are ways to keep your home in bankruptcy. One of the first advantages of bankruptcy is an automatic stay, which will prevent creditors from taking collection action against a person in bankruptcy. If you are looking at foreclosure, the filing of a bankruptcy petition will temporarily suspend the foreclosure action. The automatic stay will not last forever, but it will give you more time to review all of your options.   

From there, what will happen to your house will depend on the type of bankruptcy you file, the amount of equity in your home, and whether you own the house jointly with someone else. It’s extremely important to consult with a bankruptcy attorney to review all of your options before deciding which type of bankruptcy is best for your situation. 

In a Chapter 7 case, while you will lose assets but get rid of debts, you can either formally reaffirm the mortgage loan or, in some judicial districts, just keep making payments. If you fall behind on payments, and have some equity in your home, Chapter 13 bankruptcy may be a better choice for you because it allows you to pay off the arrearages (mortgage) over time and therefore face less risk to losing your home to the trustee. A critical consideration in a Chapter 13 case is whether a debtor whose home loan is in default can make the larger mortgage payments (the missed payments plus resuming the original payments) over the repayment period. (See this article on home foreclosures for more information on this subject). If your home equity is larger than the state's homestead exemption, Chapter 7 is not the choice since you would probably lose your home. 

Finally, if you own your home jointly with another person, the type of ownership can affect how your home is treated during bankruptcy. If your ownership is jointly with a spouse, the community property laws in your state can limit or expand your available exemptions. Filing jointly on the joint property may allow you to protect a greater interest in your home. Because this aspect varies from state to state, make sure to consult an attorney in your jurisdiction before filing.

 

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