A chapter 7 bankruptcy filing could put some of your property in jeopardy. While the thought of losing property through a bankruptcy can be scary, knowing what will happen will only help you make the best decision when it comes to filing. Read on to learn more about your home, bankruptcy and exemptions.
Why could I lose property?
A lot of people think of bankruptcy as a way of getting out of debt, but that is only part of the story. A chapter 7 bankruptcy is also known as the "liquidation" form of bankruptcy and with good reason. When you took out certain types of loans, you might have realized that if you fail to pay as agreed the bank or lender could take the property back from you. Most often this happens with secured debts like mortgages and auto loans.
Bankruptcy presents yet another opportunity to lose property. When you declare bankruptcy, you are placing your home in jeopardy. If the math is on your side, you lose nothing. If not, some of your property can be taken and sold to help pay off your creditors.
Is your home at risk?
This asset is both the largest and the most vulnerable to seizure. Homes that are almost paid off present a valuable asset to help pay off some of your debts. Fortunately, the bankruptcy code allows filers to use what are called exemptions to decrease the value of property and make it less attractive to the bankruptcy trustee.
Home exemptions are referred to as homestead exemptions, and the amount you get to remove from your asset varies by state. In some states, you can double your exemption if you are married and you are filing a joint bankruptcy. When it comes to using a homestead exemption here's what to know:
1. The amount of equity you have in your home matters. If you owe more to your mortgage company than the home is worth, you may have too little equity in your home to make it a viable seizure.
2. Deduct the amount of your state's homestead exemption from your home's value minus what you owe to determine what your home is worth to the bankruptcy court.
3. The amount of your bankruptcy matters a great deal too. If your total bankruptcy is worth about $100,000 (the total amount of your bankruptcy debt) and your home is worth more than that, it is highly unlikely that it would be seized.
4. If you are behind on your mortgage, you could still lose your home to foreclosure. A bankruptcy filing will place a temporary stay on foreclosure proceedings, but you must still deal with your mortgage lender to avoid losing it.
Your bankruptcy attorney can let you know about any potential losses ahead of your filing, so speak with one today and get started on your fresh start.