Filing for bankruptcy is a significant financial decision that can offer relief from overwhelming debt. One common concern among those considering bankruptcy is whether they will be able to keep their home. The answer depends on several factors, including the type of bankruptcy you file, your financial situation, and the specific laws in your state. This article explores the key considerations and strategies for keeping your house while filing for bankruptcy.

Understanding Bankruptcy Types

There are two main types of bankruptcy that individuals typically file for: Chapter 7 and Chapter 13. Each type has different implications for your assets, including your home.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, involves the sale of non-exempt assets to repay creditors. In exchange, most of your unsecured debts are discharged

What Happens When You File for Bankruptcy? Can I Keep My House?

Filing for bankruptcy can provide a vital lifeline if you're drowning in debt, but it also raises significant concerns, particularly about your assets—most notably, your home. Many people wonder, "Can I file for bankruptcy and keep my house?" To address this question comprehensively, it’s essential to understand what happens when you file for bankruptcy, the impact on your home, and strategies to protect your property throughout the process.

The Bankruptcy Process: An Overview

Filing for bankruptcy involves a series of legal steps designed to help you manage or eliminate debt. Here’s a general overview of what happens when you file:

1. Filing the Petition: You start by filing a bankruptcy petition with the court, which includes detailed information about your finances, income, debts, and assets. This step officially initiates the bankruptcy process and puts an automatic stay in place, halting most collection actions against you.
2. Automatic Stay: The automatic stay is a legal injunction that temporarily prevents creditors from pursuing collection activities, such as foreclosure, repossession, or wage garnishments. This stay gives you a reprieve and time to work out a plan to address your debts.
3. Meeting of Creditors: After filing, you will attend a meeting of creditors (also known as a 341 meeting), where you answer questions under oath about your financial situation. Creditors may also attend to ask questions, though they often do not.
4. Debt Repayment or Discharge: Depending on the type of bankruptcy you file, you will either work out a repayment plan or have your debts discharged. In Chapter 13 bankruptcy, you’ll follow a court-approved repayment plan over three to five years. In Chapter 7 bankruptcy, non-exempt assets may be liquidated to repay creditors, and remaining eligible debts are discharged.

Chapter 7 Bankruptcy: Impact on Your Home

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is often used to discharge unsecured debts like credit card balances and medical bills. Here’s how it can affect your home:

• Exemptions: Bankruptcy exemptions protect certain assets from being sold to pay off creditors. Each state has its own set of exemptions. In New York, for example, you can exempt up to $170,825 in equity in your home under the homestead exemption. If your home’s equity is below this threshold, you’re likely to keep it.
• Secured Debts: If you’re behind on your mortgage payments, Chapter 7 doesn’t offer a way to catch up on missed payments. However, if you’re current on your mortgage, you can generally keep your home as long as you continue to make payments.
• Reaffirmation Agreements: In some cases, you can enter into a reaffirmation agreement with your mortgage lender, which allows you to keep your home by continuing to make payments and agreeing to be legally responsible for the debt despite bankruptcy.

Chapter 13 Bankruptcy: Impact on Your Home

Chapter 13 bankruptcy is often referred to as a reorganization bankruptcy. It allows you to keep your assets, including your home, by repaying your debts over a three to five-year period. Here’s how it impacts your property:

• Repayment Plan: Under Chapter 13, you propose a repayment plan to your creditors that outlines how you will pay back your debts over time. This plan can include catching up on missed mortgage payments, which helps you avoid foreclosure.
• Home Retention: As long as you adhere to the repayment plan and continue to make your mortgage payments, you can keep your home. Chapter 13 provides a structured way to manage your debt and protect your property.
• Equity in Your Home: Unlike Chapter 7, Chapter 13 does not require you to sell assets. Instead, you need to ensure that your repayment plan addresses any outstanding debts and that your home’s equity is factored into the plan’s terms.

Strategies to Keep Your Home in Bankruptcy

Regardless of the type of bankruptcy you file, there are strategies to help you keep your house:

1. Stay Current on Mortgage Payments: Ensure that you stay current on your mortgage payments during the bankruptcy process. In Chapter 13, you’ll include your mortgage arrears in your repayment plan, but maintaining regular payments is crucial.
2. Review Exemptions: Understand and utilize state exemptions to protect as much of your home’s equity as possible. Consult with a bankruptcy attorney to determine how exemptions apply to your specific situation.
3. Negotiate with Creditors: Work with your bankruptcy attorney to negotiate with your creditors, including your mortgage lender. In some cases, lenders may be willing to modify loan terms or enter into a reaffirmation agreement to help you keep your home.
4. Seek Professional Advice: Bankruptcy laws are complex and vary by state. Working with an experienced bankruptcy attorney in New York City can help you navigate the process, understand your rights, and develop a strategy to keep your home.

Conclusion

Filing for bankruptcy can be a powerful tool for resolving financial difficulties, but it’s natural to be concerned about the impact on your home. Whether you’re considering Chapter 7 or Chapter 13 bankruptcy, understanding the implications and working with a knowledgeable bankruptcy attorney can help you make informed decisions and protect your property.

If you’re asking, “Can I file for bankruptcy and keep my house?” the answer largely depends on your specific circumstances, including the type of bankruptcy you file, your equity in the home, and your ability to maintain mortgage payments. By staying informed and seeking professional guidance, you can navigate the bankruptcy process effectively and work towards a resolution that allows you to keep your home and regain financial stability.