Keeping Your Home in a Chapter 7 Bankruptcy

By it’s very name, a Chapter 7 liquidation bankruptcy sounds like a process that would leave you not only without any debt, but also without any property or assets left over to show for it. As a result, many people considering Chapter 7 bankruptcy worry about losing their biggest asset—their home—in the process. As such, even folks who desperately need the debt protections afforded by Chapter 7, more often than not delay their bankruptcy filing, waiting for another solution that could also allow them to hold onto their home.

If this is your own personal justification for avoiding a personal bankruptcy under Chapter 7, fear not. In the vast majority of cases, your bankruptcy trustee will not liquidate your “home sweet home” to pay off creditor claims. In fact, under current bankruptcy law, most clients find that even if they have significant equity in their home, it is fully protected from liquidation by your state's exemption laws.

Specifically, in terms of real property, like your home, state and federal homestead exemptions apply to bankruptcy. Under these federal exemptions, you can exempt your home equity up to $21,625, as long as your home is used as your primary residence. If you represent half of a married couple, this amount is doubled, as both of you are allowed to claim this exemption in residential real estate. Yet, in states like North Carolina, which have opted out of federal exemptions, you can exempt up to $35,000.00 in equity, and double that amount for married couples. If you bought the home as a married couple, there is a good possibility your equity is protected even beyond the $70,000 North Carolina homestead exemption by a special exemption for marital property. Talk to an experienced bankruptcy attorney to be sure.

Not sure of your net equity for the purposes of bankruptcy? To determine equity take the value of your home and subtract any mortgages or other liens you have attached to it. The result is your equity. For example, if your house is worth $300,000.00 and you have a first mortgage on which you owe $210,000 and a second mortgage on which you owe $60,000, you have $40,000 in net equity.  In the likely event, particularly in this economy full of underwater mortgages, that you have no equity in your home for the purposes of this exemption, a Chapter 7 bankruptcy filing will not matter: your bankruptcy trustee won’t be able to sell your home to pay creditors. As a result, (you guessed it) your trustee will likely not want to sell your home. If you factor in the fact that it will cost your trustee money to sell your home, your house would appear to be safe—even in Chapter 7 bankruptcy.

In short, if your home does not have equity over that which is exempted under federal or state law; nor can it be touched as property owned under tenants by the entirety, your property is safe in Chapter 7 bankruptcy, assuming that you continue to make the mortgage payments on the home.  Make your payments, and file away.

Join the millions of Americans who have found immediate assistance to dispense with debt and keep their homes in Chapter 7 bankruptcy. Knowing a qualified bankruptcy attorney can help you to conquer your creditors and face your economic fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future beyond our own “Great Recession.” The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to +1-833-627-0115, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.