It’s every American’s dream to own a home, but some achieve that goal only to encounter financial difficulties in the future. In some instances, debtors can keep their homes even if they file for bankruptcy. However, if a person files for Chapter 7, keeping their home can depend on the level of equity they have.
Homestead Exemption and Chapter 7
With Chapter 7, a court-appointed trustee sells the debtor’s property and uses the proceeds to pay debts. If a home has no equity, the trustee isn’t likely to sell it. The federal homestead exemption law provides protection for a minimum amount of equity even during bankruptcy. As long as the homestead exemption is greater than the equity, the debtor can keep their home.
Saving a Home during Chapter 13 Bankruptcy
In Chapter 13, the debtor works out a court-approved plan to repay creditors. Every month, the debtor gives the trustee all their extra income. Rather than liquidating assets, the trustee uses the money to repay creditors. If a person is behind on their mortgage payments, a bankruptcy attorney in Lawrence, KS, can help them catch up with their payments by including the arrearage (difference between the amount paid and the amount required to be paid) in the payment plan.
Mortgages and Bankruptcy
Bankruptcy does not wipe out mortgage debt. If a person files for Chapter 7 and their home is not sold, they don’t keep it unless they continue to make mortgage payments. The debtor must work out an agreement with their lender to reaffirm the mortgage in court, and to initiate a new agreement. Those filing for Chapter 13 and including their past-due payments in the payment plan must continue to pay or risk losing their home.
Bankruptcy Eliminates Property Tax Delinquencies
Both Chapter 13 and Chapter 7 can eliminate property tax delinquencies. In Chapter 7, these debts are erased; in Chapter 13, they can be included in a payment plan.
Hiring a Bankruptcy Lawyer
The laws on homes and bankruptcy are complicated, and no two personal bankruptcy cases are alike. The information given here provides a brief and non-specific introduction to the concept. For information that is specific to a particular set of circumstances, a debtor should visit the website to contact a bankruptcy attorney in Lawrence, KS, for a free evaluation.