How To Keep Your House When Filing Bankruptcy
Your home represents your most important personal and financial asset. If you find you are in serious financial trouble, you may wonder what you can do to keep your house if you file for bankruptcy. The U.S. Bankruptcy Code provides a process that may permit you to keep your house when you file for bankruptcy protection.
Request a bankruptcy petition packet from the clerk of the bankruptcy court. The packet includes the petition for bankruptcy and associated schedules, as well as instructions for completing these forms. These forms are available from office of the clerk as well as online from the bankruptcy court website.
Complete the petition, making certain to include your house as an asset.
List your house as an exempt asset on the exemptions schedule. Although bankruptcy is a federal case, many states have homestead exemptions that protect the homeowner. In California, your house is exempt property pursuant to the state’s homestead exemption. The bankruptcy form instructions include the specific parameters of the homestead exemption in your state. In California, equity up to $75,000 in your home is generally exempt if you are under 65 years of age, $150,000 if you are over that age, according to the California Code of Civil Procedure Section 704.730.
File the bankruptcy petition and schedules with the bankruptcy court clerk. Pay the filing fee.
Can A Bankruptcy Trustee Take My Home
Itâs not common, but itâs possible in certain circumstances.
The bankruptcy trusteeâs job is to sell non-exempt property for the benefit of unsecured creditors. That includes personal property and real property. Whether your home is safe from the trustee depends on whether it has any ânonexempt equityâ which in turn depends on its market value.
As a reminder, hereâs how we calculate equity in this scenario:
How Does Chapter 7 Bankruptcy Work
Chapter 7 bankruptcy provides financial relief to qualified individuals struggling with debt. Once filed, the automatic stay stops most creditors from contacting you. While in place, those creditors cannot call you, send you bills or letters, or take other action to collect the debt. If you have a car loan when you file for bankruptcy, the creditor cannot repossess the car.
On average, you can expect the Chapter 7 process to take three to four months.
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How Does Bankruptcy Affect Your House
About 1 in 4 people who filed bankruptcy with Hoyes, Michalos own a house. In all cases we can show you how to keep your house, even if you decide to claim bankruptcy.
There are options to keep your home in a bankruptcy but the best approach depends on the value of the house, the amount owing on the mortgage, and your household budget. We will focus on three possible options:
How to claim bankruptcy and keep your house
Under Ontario law, if the equity in your home does not exceed $10,000, all you need to do to keep your home is maintain the mortgage payments. Your mortgage lender cannot foreclose on your home just because you went bankrupt. Some other provinces have similar exemptions that allow you to keep a certain equity in your house, you can research other Canada laws around bankruptcy and home equity here.
But what if the equity in your home exceeds $10,000?
Should you declare bankruptcy while your house is worth more than $10,000 above the mortgage and you want to keep your home, you will need to pay the bankruptcy trustee the equivalent of any equity value in your home.
Your Licensed Insolvency Trustee will advise you to get an appraisal on your house as part of the assessment process in order to determine just how much equity there might be. If you can afford to buy out this equity, bankruptcy can still be a solution to eliminating your other debts.
Show You Have Sufficient Income
Using the Chapter 13 plan to catch up on your arrearages will only work if you have the income to make both your regular monthly mortgage payment and your plan payment while you’re in bankruptcy.
Once you’re in Chapter 13, the mortgage holder can’t foreclose if you’re paying your house and plan payments on time and keeping to your mortgage terms, like ensuring that you have homeowners insurance in place.
Secured And Unsecured Debt
Bankruptcy court courts looks at debt two different ways. Secured and unsecured.
Secured debt is a debt that has a lien against a piece of your property. Typical examples of secured property are a mortgage against your house or a lien on your car title.
Unsecured debts are typically credit cards, and collection accounts.
The reason why most bankruptcy filers get to keep their house or car is that the debt is secured and there is very little equity. This give us a chance to use the bankruptcy rules to your benefit.
What Is Exemption Planning
Exemption planning is the practice of organizing your financial affairs in a way that maximizes your exemptions and allows you to protect the most amount of property in bankruptcy. Converting nonexempt property into exempt assets can be part of exemption planning. However, if you engage in excessive exemption planning, it can be considered bankruptcy fraud and result in criminal prosecution or an objection to your bankruptcy dischargethe order that erases qualifying debt.
Bankruptcy Exemptions: What Property Can You Keep In Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, almost all of your property becomes property of the bankruptcy estate. That doesn’t mean you lose everything. The purpose of bankruptcy is to provide people with a fresh startand part of that fresh start is keeping the things you need to hold down a household and job. Bankruptcy exemptions allow you to keep the things you’ll need to work and live, such as furniture, dishes, clothing, and a car.
How much property you can exempt differs depending on which state you live in because each state has a set of exemption laws .
Example. If you own a car worth $5,000 and your state allows a $6,000 car exemption, then you can keep your vehicle. However, if you live in a state that only allows a $2,000 car exemption , then the bankruptcy trustee may take your car and sell it. From the proceeds of the sale, the trustee will pay you the exemption amount of $2,000 and distribute the rest among your creditors.
State Law Vs Federal Law
We live in a federal republic. There are 50 states with their own set of laws. Bankruptcy laws are federal. State and Federal laws determine different things. Bankruptcy laws determine whether or not you can break your promise to repay debt. State law determines who has the right to own property.
For example, state law determines whose name is on the title to your car. Bankruptcy law determines whether or not you have to pay your car note.
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Enter Into A Reaffirmation Agreement With Your Car Lender
A reaffirmation agreement with your car lender is a possibility if you dont own your vehicle outright. A reaffirmation of the debt is your promise to pay the car loan according to its terms. Your car stays separate from the bankruptcy proceeding. The car is no longer part of the bankruptcy, and the bankruptcy proceeding does not impact it. If you default on your loan payments after the reaffirmation, the leaseholder can repossess your car.
If you want to enter into a reaffirmation agreement to keep your car out of bankruptcy, the bankruptcy trustee must approve it. Some trustees dont like reaffirmation agreements. Others will approve them if the lender agrees to a lower rate or balance. To get a reaffirmation agreement, you must show that you can make the payments for the vehicle.
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Does It Depend On The Type Of Bankruptcy
The type of bankruptcy you go with will significantly affect what happens to your car. If you file for Chapter 7, youll be able to keep your vehicle as long as local bankruptcy laws exempt all your equity and youre up to date on your loan payments.
To figure out how much equity you have in your car, take your loan balance and subtract it from the value of your car. Note that if youre close to the end of your term, you may not have a lot of equity as vehicles depreciate quickly.
After you know how much equity you have, find the motor vehicle exemption in your state. If you have less equity than the exemption limit, you shouldnt have any issues keeping your car. Because Chapter 13 involves a debt repayment plan and doesnt liquidate assets to repay creditors, your property wont be sold. This means if you own your car, it will likely be yours to keep.
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Bankruptcy Exemptions For Farmers
Up to 160 acres of land is exempt if your principal residence is located on that land and is part of your farm. Any personal property necessary for your farming operations over the next 12 months is also exempt from bankruptcy. For more information about bankruptcy exemptions in Alberta, please speak to a local Licensed Insolvency Trustee.
Consider The Equity You Have In Your House
Don’t worry, Chapter 7 filers, there are still ways you can keep your house. When deciding whether your house is exempt under Chapter 7, the trustee only considers the equity in your house.
Equity is the market value of your house minus the balance on your mortgages or home equity loans. Many bankruptcy filers have little or negative equity in their houses, so their houses are exempt and need not be sold in the bankruptcy process.
However, if you have equity in your home over the exemption limit, you may be forced to sell your house to pay your debt or “buy it back” by paying the trustee the value of your house.
Protecting Car Equity In Chapter 7
A Chapter 7 bankruptcy isnt intended to deprive you of all of your property. Bankruptcy laws, called exemptions, let you keep a certain amount of your property to make a fresh start. Almost all people need a car to get to work, and most states have a motor vehicle exemption that will let you keep a modest vehicle.
Exemptions in Chapter 7 Bankruptcy
Each state has a set of exemptions, and the protections vary widely. Some states even allow a filer to choose between the state and federal bankruptcy exemption system. A filer can use whichever system will work best. While you keep exempt property, what will happen to your nonexempt propertyproperty not protected by an exemptionwill depend on the chapter you file. In Chapter 7, the trustee sells your nonexempt property for the benefit of your creditors. If your property is exempt, the Chapter 7 bankruptcy trustee cant take it. Learn more about your property and exemptions.
How Motor Vehicle Exemptions Work
Whether youll be able to keep your car will depend on the exemption amount allowed by your state, as well as the amount of equity in it. For instance, if you own a car worth $5,000 and your states motor vehicle exemption is $7,000, the vehicle will be fully protected.
If the Motor Vehicle Exemption Doesnt Cover the Equity
In Chapter 7 bankruptcy, heres what the Chapter 7 bankruptcy trustee appointed to your case will do if you cant protect all of the vehicles equity:
Using a Wildcard Exemption to Keep Your Car
Can I Keep My Car If I File For Bankruptcy
We find a common question people ask is Can I keep my car if I file for bankruptcy? They want to know what happens to your vehicle if you declare bankruptcy. Will you lose your car in the process or will the bankruptcy trustee take it? What can you expect? The answer basically depends on two things: 1) is there a loan on the car, and 2) if there is not a loan, how much is the car worth?
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Finding A Bankruptcy Lawyer
The best place to find a great bankruptcy lawyer is through the National Association of Bankruptcy attorneys or the National Association of Consumer Advocates . These not for profit organizations are comprised of attorneys who devote their life to helping consumers get a fresh financial start through bankruptcy.
There are other low cost or no cost alternatives available, but these places will treat your case as a commodity and you will not get a great result.
Best of luck to you in getting a great financial start!
What Happens To Your Car In Chapter 13 Bankruptcy
Another form of bankruptcy is Chapter 13, which works a bit differently from Chapter 7. Rather than liquidating non-exempt assets to repay creditors, you’ll enter a debt repayment plan. Your property isn’t sold off with this form of bankruptcy instead, your finances are reorganized and you’ll begin the process of repayment. If you own your car outright you’ll be able to keep it.
You will have a repayment period of either three or five years, and once that period ends, some remaining debts can be dischargedmeaning you don’t have to pay them anymore. Not all debts can be discharged, however. Credit card and medical debt can be discharged, for example, but mortgages and student loans cannot.
When you file Chapter 13 bankruptcy, your debt is grouped into three buckets:
- Priority debts: These must be repaid in full. This includes bankruptcy costs, unpaid tax bills from the past three years, and child and spousal support.
- Secured debts: Car loans are included in this category. If you have a car loan, the amount you owe on it may be reduced in the Chapter 13 bankruptcy process if you owe more on it than its current value. Also, if you can qualify for a repayment plan and get caught up on your loan, you may be able to keep the vehicle.
- Unsecured debts: These will be discharged in the bankruptcy after you’ve completed your repayment plan.
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Do You Own Your House Or Your Car Free And Clear
If you have a house or a car on which you do not owe any money, you can protect the property in Chapter 7 using exemptions. Exemptions are an area of bankruptcy law that can be confusing, so talking to an experienced bankruptcy attorney is the best way to find out if you can protect your house or your car in a Chapter 7.
Do not deny yourself the debt relief you deserve out of fear of losing your house or your car. Come talk to our New Jersey bankruptcy attorneys and find out what your options are. We may be able to develop the solution you need to get your finances back on track. With offices in five different locations throughout New Jersey, we make ourselves available to anyone who needs help with debt. Call us today for a free consultation.
How Do I Know How Much Equity I Have
You can calculate your homes equity by taking the value of your house, and subtracting the amount you owe on your mortgage and the currently owed property taxes from this value.
House value amount owed on mortgage currently owed property tax = Equity
In most personal bankruptcies, the home must be sold so that this equity value can go to your creditors.
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Option 4 Do Nothing Keep Paying
Why sign a document or cough up big money you dont have?
In the old days, you could simply do nothing and continue making payments after your Chapter 7 bankruptcy. The lender got paid, you kept the car or house. It was a classic win-win situation.
Not necessarily so anymore, though. Depending on the type of property, the lender and the specific facts of your case it may not work for you to keep making payments and hope to keep the property.
You and I will need to talk about this option if thats the one you want to take. The last thing I want to see is a situation that blows up in your face, spoiling your plans.
Bankruptcy Exemptions Help You Keep Your House Automobile Pension And Retirement Funds Personal Belongings And More
By Cara O’Neill, Attorney
You’re concerned that you could lose property in bankruptcyand you’re right. But you can eliminate surprises with careful planning. Start by learning how exemption laws protect assets in bankruptcy. Here are the basics:
- Your state decides which property you can save.
- You’ll lose unprotected property in Chapter 7 and pay to keep it in Chapter 13.
- Timing rules tell you the state’s exemption laws you’ll use.
You’ll find more details below. To check for common issues in your bankruptcy case, try the ten-question bankruptcy quizit flags areas you’ll want to look into further.
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Bankruptcy Exemptions By State
To figure out if all of your property is safe, start by doing an inventory of your property. Next, use online sites like Realtor.com, Zillow.com, KBB.com, Nada.com, and eBay for replacement value estimates. You can even use Craigslist or Facebook Marketplace, but strive for accuracy and make copies of comparable listings. The trustee might require a professional appraisal for unique items.
Finally, select the exemption system that covers the property you’d most like to keep if you have a choice between two .