Bankruptcy and Home Ownership Laws

Depending on the type of bankruptcy protection, you do not always lose your home after filing.

If you ever have to file for bankruptcy, one of your main concerns will center on your home. While bankruptcy laws vary between states, most bankruptcy laws regarding home ownership are similar in their intents and their implications for you and your future. Most people think that they will lose their house if they have to file for bankruptcy. While this may be the case, often it is not and depends on what kind of bankruptcy protection that you are seeking.

Under the United States Bankruptcy Code, individuals can file for either chapter 7 or chapter 13 bankruptcy protection from their creditors. Chapter 7 bankruptcy is bankruptcy in the traditional sense. After filing all of the pertinent documents, a court trustee with order that your assets be liquidated in order to pay off your creditors. If you still owe money after your possessions have been sold, many of them will be discharged by court order. On the other hand, chapter 13 bankruptcy protection is quite different. Rather than having your debts discharged, you will submit a repayment plan to the courts that explains how you will get out of debt and what you can afford to pay off each month. In essence, chapter 13 bankruptcy is a form of debt consolidation.

If you are a current homeowner and file for chapter 7 bankruptcy, you may still be able to keep your home without being force to sell it or being foreclosed on by the banks. Depending in which state you reside, by filing for chapter 7 bankruptcy, you may be in breach of your mortgage agreements, which will allow the bank to foreclose on your home and proceed with an eviction. However, you may be able to qualify your home for an exemption by proving that the equity that you built into the home over the years cannot be accessed for liquidation very easily. If you can do this, you must also prove to the courts that you are financially capable of making your monthly mortgage payments. If not, then the banks can proceed with a foreclosure.

Filing for chapter 13 bankruptcy will make it easier for you to remain in your home. Because as part of your filing you will agree to a repayment plan, you can file for bankruptcy without being in breach of your mortgage agreement. Any late mortgage payments that you owe will be included into the payment plan and you can continue making your normal, monthly mortgage payments.

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