It is possible to keep one’s home when filing for bankruptcy but it depends on the details of the situation. Specifically, on what state you live in, how much home equity you have, what chapter of bankruptcy you are filing for and if you are current on your mortgage.
If you are filing for chapter 7 bankruptcy, to discharge your debts – the answer depends in part on if you are up to date on your mortgage payments. If you are up to date on your payments, your home you live in can be exempt from being used to pay your debts under the homestead exemption.
However, this exemption has a big limitation. Homes are only exempt up to a certain equity level (the current home market value minus any outstanding mortgage balance) which varies from state to state. Depending on how much equity you have in your home past the exemption level, the bankruptcy trustee may decide to sell your home to pay back your creditors. The federal exemption is up to $32,000 for a couple filing jointly, the exemption is up to $5000 in Georgia, while Florida exempts the entire home’s equity as long as the home does not exceed half an acre in a municipality or 160 acres. An example is below:
Tom bought a ¼ acre, $100,000 home. He has $80,000 left on his mortgage, which means he has $20,000 worth of equity in his home. He filed for bankruptcy; here are the results state by state.
- State following federal law: His home is exempt since it has less than $32,000 of equity
- Georgia: Tom’s home is sold to pay back debts since it has more than $5000 of equity.
- Florida: Tom’s home would be exempt since it is smaller than half an acre.
If you are behind on your mortgage payments, chapter 7 bankruptcy will delay but not resolve your problem. When you file for bankruptcy, an automatic stay is put against your mortgage lender, prohibiting them from initiating or continuing a foreclosure proceeding. However, this stay only lasts at maximum as long as the bankruptcy proceedings. Since your mortgage will not be discharged through chapter 7 bankruptcy, your lender will be able to foreclose on you after the bankruptcy process concludes. Furthermore, the courts can, and often does, grant the mortgage lender the ability to continue or begin foreclosure proceedings on your home during the bankruptcy proceedings (this process generally takes 10-20 days).
If you are filing chapter 13 bankruptcy, which creates a court ordered repayment plan for debt, you can push off foreclosure and give yourself more time to pay back your mortgage. The stay granted by chapter 13 bankruptcy lasts for as long as you are in your court agreed payment plan. Chapter 13 payment plans generally last for three to five years.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.