Step By Step: Keeping Your Home Through Bankruptcy
Homes are more than just bricks and sticks, and when financial conditions prompt a bankruptcy consideration, it can create fear. A chapter 7 bankruptcy filing puts all of your property at risk including your home, but you should never allow fears of a home loss to prevent you from taking a closer look at what a chapter 7 could do for you. Read on to learn how to determine the likelihood of losing your home through bankruptcy.
Step One: Are You Behind on Your Mortgage?
Bankruptcy can only do so much to protect people that are behind on their payments and are being threatened with foreclosure. A chapter 7 can give some people more breathing room, however. A bankruptcy filing means fewer bills, and that means more money to help you get caught up on the mortgage. Bankruptcy can prevent foreclosure activity for a temporary period of time, but your home might still be foreclosed on if you cannot resolve the payments in arrears.
Step Two: How Much Equity Do You Have in Your Home?
Taking into account the mortgage and any home equity loans, deduct the total you still owe on your home from the current market value of it. The resulting figure represents your equity. For example, if you have loans equaling $150,000 and the current market value of your home is $165,000, the equity is $15,000. If you owe more on your loans than the current market value, you have $0 equity. While this may sound bad, it's not. The lower your equity, the higher your chances of keeping your home with a bankruptcy.
Step Three: How Much Is the Homestead Exemption in Your State?
Every state offers filers what's known as a homestead exemption. The amount of the exemption can vary from state to state, and a few states use federal rules or allow filers to choose between federal and state rules. Further, some states allow joint filers (husband and wife) to double their homestead exemptions when they both file at the same time.
Step Four: Determine Your Exemption Amount
To determine this final figure, deduct the homestead exemption allowed from your home equity. If there is an amount left over, you may lose your home unless:
1. The bankruptcy trustee determines that the amount of equity in your home is not worth trying to sell it.
2. You are given an opportunity to make up the difference by forfeiting other property in lieu of the home.
3. Your state provides a "wildcard" exemption to use for this purpose.
To learn more about your chances of keeping your home through a bankruptcy, speak to an attorney.