When you find yourself in the situation of whether or not to declare bankruptcy, you are in a challenging position – doubly so if you are worried about putting the ownership of your home in jeopardy.
If you are concerned that declaring bankruptcy to solve your debt issues will put your home at risk, there are a few options available for you.
There are two types of bankruptcies that you are able to file for: Chapter 7 and Chapter 13. The former allows you to ask a court to discharge the majority of your debt, while the former is available for those with debts that are under a maximum amount and are able to repay them over time. Chapter 13 groups all of your debts into one payment, which is then paid off in instalments over the course of three to five years.
Chapter 13 allows debtors to have a long period of time to make smaller payments in order to pay off their debt, while Chapter 7 discharges all qualified debt outright.
Keeping your home with Chapter 7
Because Chapter 7 discharges the majority of your debts in a short time frame, there are more strict rules. While this method is more strict, there are still options for being able to keep your home.
The courts will usually allow you to keep enough assets to have shelter, however, a mortgage is a secured debt, so the bank has the right to take your home as collateral for the outstanding amount of your mortgage.
You may be able to keep your home if you satisfy some of the following conditions:
- You’re able to make house payments.
- You have a bankruptcy exemption which protects your home equity.
- There is little, or even negative equity in your home.
Keeping your home with Chapter 13
A Chapter 13 bankruptcy may give you enough time to catch up if you find yourself behind on your mortgage payments all while staying in your home, because the courts can give you a three- to five-year window to repay past-due debts, as well as all current payments.
This method of keeping your home can be a pricey one, and you will need to prove you have enough income to pay all debts covered in your bankruptcy plan, but it provides you the time and ability to do so while staying in your home.
This post was written by Trey Wright, a bankruptcy attorney in Tallahassee, FL. Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, which specializes in areas related to bankruptcy law, estate planning, and business litigation.
