Many people assume that they will lose everything they own if they file for bankruptcy, including their home. This is a common misconception that is in many cases untrue. Regardless of whether you file a Chapter 7 or Chapter 13 bankruptcy, you will often be able to keep your home. However, it is easier to ensure that you keep your home in a Chapter 13 proceeding.
Your Home in Chapter 7 Bankruptcy
Whether you can keep your home in Chapter 7 bankruptcy will largely depend on two factors: 1) the value of your home in comparison to the homestead exemption and 2) how much equity you have in your home.
Equity is the amount of unencumbered value that you have in your home. For example, assume that your home is worth $100,000. You have a mortgage with the bank that you are still working on paying off for about $80,000. That means that you have $20,000 in equity in your home.
If you have no equity in your home or if your loan is upside down, then you likely will not have to worry about losing your house in Chapter 7 bankruptcy if you can continue to make payments. This is because the trustee, who will liquidate your non-exempt assets to pay your creditors, has no interest in selling a home. Your mortgage company has a lien on the home, so if the trustee sold the home, then the house would likely just go back to the bank; there would be no additional funds to give to your other creditors. That means that the trustee has no motivation to sell it because it will not help your other creditors.
In Colorado, the homestead exemption is $75,000. For seniors, the exemption is $105,000. This exemption means that you can keep the value of your home up to that amount. The exemption can help you keep your home if you have equity in it. In the above example, where you had $20,000 in equity, the trustee would still not likely sell your home. This is because all the trustee would get out of the home if he or she sold it would be $20,000, and because of the exemption, that money would go right back to you. Again, this does not help your other creditors.
In situations where the equity in your home is higher than Colorado’s exemption, the trustee may sell your home. Then, he or she would give you $75,000 to purchase a new home. If losing your home might be a real concern for you, an experienced bankruptcy attorney can help you determine your options if you are considering bankruptcy in Colorado.
Your Home in Chapter 13 Bankruptcy
It is easier to ensure that you keep your home in a Chapter 13 bankruptcy. This is because you repay all or most of your debts in an extended repayment plan instead of liquidating all of your assets. This generally includes keeping your home. Assuming you can continue your payments, you should not have any trouble keeping your home if you file under Chapter 13.
If you are considering bankruptcy, it is important to know your options and how your assets will be affected if you file. Contact the law office of Carolyn Moller Duncan, P.C. to discuss your bankruptcy options.