When you’re in over your head in debt and can’t keep up with your payments, declaring bankruptcy is a common last resort that can provide much-needed relief. Bankruptcy allows you the opportunity for a fresh start financially, either by paying off a smaller portion of your debt over time or erasing it completely.

However, bankruptcy isn’t without negative consequences. Many people who consider filing for bankruptcy have concerns about what will happen to their property – particularly their homes. Whether or not you will keep your house after declaring bankruptcy will depend on a number of factors.

The type of bankruptcy filed

There are several different types of bankruptcy, but the two most common filed for individuals are Chapter 7 and Chapter 13. These two types of bankruptcy differ by what happens to your property and possessions after you file.

  • Chapter 7 bankruptcy, also known as liquidation bankruptcy, sells your property to pay off the debt you owe. However, while you’ll have to sell your property, there are some state-level exemptions that may allow you to keep essentials such as your house or car. North Carolina protects up to $35,000 in equity for any personal property used as a residence. But, if the equity of your house exceeds $35,000, your house may be sold to pay off debts.
  • Chapter 11 bankruptcy, also referred to as reorganization bankruptcy, does not sell off any of your assets. Instead, the court determines a repayment amount for you to pay off your debts over time – typically three to five years. If you are able to catch up on payments for the secured debt on your home or car and continue to pay on time, you will be allowed to keep your property after your debt is paid off. Though if you can’t keep up, creditors may go after these assets to repay your debt.

Whether you can afford your home

Even if you get to keep your home, you will have to continue paying off your mortgage after you complete your bankruptcy payments. While some people find they can finally afford their mortgage after bankruptcy, others may still struggle with their payments.

The bank may foreclose your home if you can’t afford your mortgage payments. If you have concerns that you won’t be able to afford your home even after bankruptcy, you may wish to consider selling your home during bankruptcy to eliminate your mortgage.

Bankruptcy is a difficult choice to make. But it may allow you to keep the property that matters most while helping to get rid of problematic debt.