Bankruptcy Discharge

Bankruptcy to keep your home?

You may want to consider filing bankruptcy to keep your home, or at least use it to delay foreclosure in some difficult circumstances. The majority of people that declare bankruptcy are able to keep their home throughout the process, but some are not. The government does not expect landlords and other property owners to provide free housing, even for people who are struggling financially.

What does bankruptcy help with in relation to a home? Bankruptcy is designed to give you a fresh start and can provide more freedom from other current debts that might be draining your financial resources. Having other debts wiped out often enables people to afford their mortgage payments. Most people are able to keep their homes throughout the bankruptcy process. If your property is worth less than a particular dollar amount, you can keep it. Chapter 13 bankruptcy plans offer options that are more flexible and then Chapter 7 bankruptcy.

When deciding whether your house is exempt under Chapter 7 bankruptcy, the bankruptcy trustee only considers the equity in your house. Equity is the market value of your house minus the balance on your mortgages or home equity loans. Many bankruptcy filers have little or negative equity in their houses, so their houses are exempt and need not be sold in the bankruptcy process. However, if you have equity in your home over the exemption limit, you may be forced to sell your house to pay your debt or “buy it back” by paying the trustee the value of your house.  Filing bankruptcy in Utah to keep your home is definitely something you would want to consult an experienced attorney about.

There are three factors that determine whether you can use bankruptcy to keep your home:

The type of bankruptcy you file: There are two types of bankruptcies that most consumers choose to file: Chapter 7 and Chapter 13. There are many differences between the two, but the major difference has to do with the way your property gets treated in the bankruptcy process. The federal government assumes that everyone tries to pay off their debt, and that if someone has excessive property they should sell it to pay off their debt. However, bankruptcy is designed to give you a fresh start, not to leave you impoverished, and the federal and state governments often have exemptions.  Exemptions help shield your property with equity from being taken by creditors in the bankruptcy process.  In general, Chapter 7 offers less flexibility and a greater chance of losing your property than a chapter 13 bankruptcy. Bottom line if you file a chapter 13 bankruptcy, you are much more likely to keep your house than if you file a chapter 7 in situations where there is significant equity in a property.

How much equity you have in your house:  Chapter 7 bankruptcy filers, there are still ways you can keep your house. When deciding whether your house is exempt under chapter 7, the trustee only considers the equity in your house. Equity is the market value of your house minus the balance on your mortgages or home equity loans. Many bankruptcy filers have little or negative equity in their houses, so their houses are exempt and need not be sold in the bankruptcy process. However, if you have equity in your home over the exemption limit, you may be forced to sell your house to pay your debt or “buy it back” by paying the trustee the value of your house.

Whether you can afford your mortgage: Assuming you kept your house throughout the bankruptcy process, after the bankruptcy you are free to keep your home as long as you continue to pay the mortgage. It may be that after you are free of all the rest of your debt you will be able to afford the mortgage payments easily. If so, you’ll be able to keep your house.  Please note that if your income will not allow you to make your mortgage payments, the bank may eventually foreclose on your home.

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