If you are wondering whether you can keep your house when you file for Chapter 7 bankruptcy, it depends on your current situation and goals. Some questions you need to ask yourself before filing for Chapter 7 bankruptcy are:
- Do I Want To Save My House?
- Do I Want To Delay Foreclosure?
- Or Do You Just Want To Walk A Way With Less Debt?
There are many factors that come into play to determine whether you can keep your house but these are the most important:
- How Much Equity You Have In Your House
- Are You Current On Your Mortgage Payments
- The Amount Of Homestead Exemption
Keeping Your House In Chapter 7 Bankruptcy
It is possible to keep your house if you don’t have any equity in your house or you can use the Homestead Exemption to protect any equity that you may have on the house. The bankruptcy trustee has to figure out how much equity you have in your house to determine whether there would be enough money left over to pay to creditors once the house is sold. The more equity a house has, the likelier the trustee may sell the house to pay off unsecured creditors. If you don’t have equity, the trustee may not sell your house because there are too many liens and/or too much mortgage debt. Therefore, it is possible for you to keep your house in Chapter 7 bankruptcy. Also, in California has two Homestead Exemptions that may be used to protect any equity you may have.
Figuring Out Your Equity
To figure out how much equity you have, find the fair market value (today’s price) of your house then subtract the amount owed on the mortgage(s) and the amount owed on any lien(s). If you end up with a negative number, it means you don’t have enough equity for the trustee to sell your house; which means you won’t lose your house through bankruptcy. If the number comes out positive, then that is your equity. If there is enough equity in your house, the Chapter 7 bankruptcy trustee might sell your home, give you the amount of the homestead exemption, pay off mortgage and lien holders, and use the rest to pay off unsecured creditors.
Every state has different rules for Homestead Exemptions and amounts that can be used to exempt assets and properties. On top of that, each state has different rules for using the federal Homestead exemptions. Be sure to check your state for current exemption laws. In California there are two systems of Homestead exemptions that filers can use. In section 704 exemption, it benefits filers who want to protect their equity in their house. While section 703 exemption may benefits filers who want to protect other types of valuable property (life insurance, Veteran Benefits, etc..) Which one you use is dependent on your current situation and what assets and/or property you want to protect. Seek legal counsel to determine your best option.
Staying Current On Your Mortgage
In order to keep your house, you must also remain current on your mortgage payments. Once you file Chapter 7 bankruptcy, you won’t be liable for the mortgage but the lender still has a lien on your house. Therefore if you default, the lender still has the ability to foreclosure on you and that will also negatively impact your credit and financial future. When you file for bankruptcy, you will also not be liable for unsecured debt(credit card debit, medical bills, etc..). Consider to use that money that you saved from not paying those unsecured debts to keep your mortgage payments current. If you are struggling to pay the monthly payments, contact your lender to see if you can modify your loan.
Your Other Options
Some other options to consider to help get out of this current situation include reducing monthly expenses, get an additional job to increase your income, contact a credit counselor, or negotiate with the lender to do a “shortsale”. If after you try all these options and you find yourself facing foreclosure, contact a direct buyer like us. At 1 Bedroom House Buyer, we buy one and two bedroom houses in Bakersfield, Desert Hot Springs, Victorville, Barstow, CA. We can help you avoid foreclosure and protect your credit and financial future. The sooner you contact us, the higher chance we can help you avoid foreclosure.