Making the decision to file bankruptcy may be one of the more difficult decisions that you ever make. However, going through the process can help you get the clean financial slate you need to move forward. There are many benefits associated with filing for bankruptcy, but also many concerns.
One of the main concerns homeowners have is whether they will be able to keep their homes after filing bankruptcy. According to Findlaw, whether you can keep your home depends on the variety of bankruptcy you file.
Why does the bankruptcy type matter?
Chapter 7 and Chapter 13 are the most common personal bankruptcy types. Chapter 13 bankruptcies are “reorganization” bankruptcies, as they aim at reorganizing the debtor’s finances to pay off debt. In this variety of bankruptcy, you can keep your home. In fact, holding on to assets is the major benefit of a Chapter 13 bankruptcy.
A Chapter 7 bankruptcy is a “liquidation” bankruptcy. People file Chapter 7 bankruptcies more commonly than Chapter 13 bankruptcies, and the filer typically chooses a Chapter 7 bankruptcy because they do not have enough money for a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, there is the possibility of you losing your home.
If I file a Chapter 7, must I lose my home?
No. Whether you keep your home with a Chapter 7 bankruptcy depends heavily on the amount of equity you have in the house. If your equity is negative, the bankruptcy court will exempt your home from the liquidation process. If your equity is positive, it is likely that you will have to sell your home; however, there is the possibility of purchasing it back afterward.