Can I Keep My Home If I File for Bankruptcy?

Although declaring bankruptcy is something that sounds terrifying, sometimes it’s a necessary step to getting out of debt and back to financial stability. Luckily, in many cases, one will not have to sacrifice everything in order to find themselves on solid ground again.

One of the most frequent deliberations people have when filing for bankruptcy is whether or not they will be able to keep their home when filing. Below, we’re going to cover the factors that determine the answer to this, which change on a case by case basis.

Which Type of Bankruptcy Will You be Filing For?

When it comes to bankruptcy, it is assumed that the person filing has tried all they can do to pay off their debts. Overall, the goal is to give people a fresh start at a life; it is not to free them of outstanding debts while leaving them with nothing at all. In many cases, home payments can continue to be made under both types of bankruptcy, although there are major differences between the two that play a role in property possession. A person’s financial situation will dictate the type of bankruptcy they file for: chapter 7 or chapter 13.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is known as a liquidation of debts. An individual’s assets are sold to pay off outstanding debts. Learn more about chapter 7 bankruptcy and if you meet the filing requirements.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy renegotiates debts in order to allow the debtor to pay them back over a period of time. Usually, chapter 13 is granted to those with an income that exceeds that of the chapter 7 requirement. Because chapter 13 is not a liquidation of debts, it does not require the sale of major assets (such as one’s home).

Chapter 13 is the more flexible of the two bankruptcy options and provides a greater likelihood of continual home/property possession.

Chapter 7 Doesn’t Always Mean You’ll Lose Your Home

When looking at a home and its value, the home’s equity will be taken into consideration. A home’s equity is its market value excluding mortgage and equity loans. Generally, when equity on a home is low or negative, it will not have to be surrendered by those filing for bankruptcy. If allowed to keep their home, individuals will have to continually keep up with their mortgage payments throughout the process. If unable to make these payments, their home may end up being foreclosed. It is at this point homeowners will have to make a difficult decision — to keep the home or walk away without it, debt free.