Chapter 7 bankruptcy is a last-resort way to discharge debt amassed through loans and credit cards and save your home. It allows a debtor to write off most debts and begin fresh after a short time. However, it also affects the credit score and typically requires giving up property. Homeowners may be concerned about filing for Chapter 7 bankruptcy because they do not want to lose their properties. The good news is that, in many cases, Chapter 7 bankruptcy can save your home.
How Does Bankruptcy Save My Home?
With the typical Chapter 7 filing, the debtor turns assets over to a bankruptcy trustee for sale to repay included debts. Some assets are exempt from liquidation, preventing the individual from having to start from scratch after the bankruptcy is discharged. These exemptions may pertain to an entire asset or a certain amount of its value. State and federal laws and tax filing status affect the exemptions available so a bankruptcy lawyer should be consulted for specific details. Exemptions are what makes bankruptcy an option to save your home from foreclosure.
The Homestead Exemption
The homestead exemption is a common exemption for a Chapter 7 bankruptcy filer. This is designed to protect the home and is typically subject to a dollar limit. The federal homestead exemption is a maximum of approximately $20,000. Homestead exemptions vary widely by state. For example, Kentucky law permits up to $5,000 in property value plus $3,000 in personal property to be designated as homestead. New York allows up to $10,000 of property value under the homestead designation. Each state allows for a different amount of the homestead exemption to help save your home and still allow you to erase all kinds of debt.
State laws are constantly changing regarding homestead exemptions so consulting an attorney is seriously recommended-you don’t want to make a mistake that will cost you and your family your house. Depending on the state, the debtor may be able to include some personal property in this exemption, protecting it from liquidation. If the value of the home is very low, Chapter 7 bankruptcy may be a viable way to eliminate unsecured debt. This works best is there is little to no equity in your home. If there is little equity in your house, Chapter 7 bankruptcy may be the best way to save your home and allow you to move on without credit card or medical bill debt!
For homeowners whose property value is much higher than the state or federal exemption, Chapter 13 may be a better choice. Chapter 13 bankruptcy is designed to stop the home foreclosure process. However, debt is reorganized and repaid instead of being written off. An individual with substantial unsecured debt, low income, and little property should weigh the benefits and drawbacks of each type of bankruptcy.
Chapter 7 bankruptcy erases debt and this makes it the preferred choice for many people drowning in credit card bills and loan repayments. Homeowners should consult a lawyer to determine whether filing for Chapter 7 will put their houses at risk. Getting expert legal advice prevents unexpected outcomes of the bankruptcy process. Most people don’t realize that it is possible to file bankruptcy and still save your home–but it just may be the relief you are looking for!