How Long Will Selling The Home Take
Trustees will typically sell the home in a timely fashion. Generally, an individual remains bankrupt for 3 years. Trustees are required by law to sell a home within 6 years after an individuals bankuptcy ends. This allows 9 years to arrange the sale. If the trustee does not sell the home within this period, ownership of the home could be returned to the individual.
The 6 year rule only applies if the trustee is aware the home exists. If a home is not disclosed in the bankruptcy documents, the trustee will have 20 years to take possession and sell the home.
What Happens If You Own A House And File For Chapter 7 Bankruptcy
Updated by Cara O’Neill, Attorney
Whether Chapter 7 bankruptcy makes sense when you own a home depends on your goalsdo you want to save your house, delay foreclosure, or just walk away with less debt?
Most Chapter 7 bankruptcy filers can keep a home if they’re current on their mortgage payments and they don’t have much equity. However, it’s likely that a debtor will lose the home in a Chapter 7 bankruptcy if there’s significant equity that the trustee can use to pay creditors. For those planning to walk away, filing can delay foreclosure for a short period.
You’ll find a complete overview of the bankruptcy process in What You Need to Know to File for Bankruptcy in 2021.
Will I Lose My House If I File For Bankruptcy
- Jennifer Thomas
Its a common fear around filing for bankruptcy that it means youll lose your house. While its true that can happen, its by no means a foregone conclusion. Heres what you need to know about the impact of bankruptcy on your house.
Whether you can keep your house or not will depend on a number of factors: the type of bankruptcy you choose, if youre current on your mortgage, how much equity you have in your house and your states laws.
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When Is Your Property Exempt
Will I lose my house if I file for bankruptcy, you ask? A bankruptcy trustee will not sell your property if its equity is less than or equal to the homestead exemption. The federal homestead bankruptcy exemption protects your house equity value of up to $25,150. The exemptions could be higher in some states. Lets take a look at the three most populous states in the country:
California has two systems to use in the homestead exemption. In System 1, the exemptions are as follow:
- $75,000 for single homeowners
- $100,000 if you live with family members
- $175,000 if youre senior or with disability
- $175,000 if youre aged 55 above, single and with low income
In System 2, the exemption is up to $29,275. As to which system will be more applicable to you depends on what you want to protect.
Texas is more generous, with unlimited homestead exemption for the following conditions:
- 10 acres of residence in a city, town, or village
- Up to 100 acres in the country
- Up to 200 acres for families
You can choose to liquidate your house, and the proceeds will be exempt for the next six months.
Another generous homestead exemption is in Florida. If your home is not more than half an acre in a municipality or within 160 acres in other areas, and you own it for at least 1,215 days, you have an unlimited exemption. Otherwise, youre limited to the federal homestead exemption. If you file under Chapter 13, youll pay the nonexempt equity amount in your repayment plan.
What Does It Cost To File For Bankruptcy
The Bankruptcy Court collects a fee to file a bankruptcy petition. It now costs $299 to file for bankruptcy under chapter 7 and $274 to file for bankruptcy under chapter 13, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you cannot pay all at once. If you hire an attorney to represent you in your bankruptcy case you will also have to pay the attorneys fees you agree to.
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Whats The Difference Between Chapter 7 And Chapter 13
If youre considering filing bankruptcy, you should understand the options that are out there. Chapters 7 and 13 bankruptcies are the most used alternatives for individuals.
Chapter 7 bankruptcy is also known as total bankruptcy. Its a wipeout of much of your outstanding debt. Also, it might force you to sell, or liquidate, some of your property in order to pay back some of the debt. Chapter 7 is also called straight or liquidation bankruptcy. Basically, this is the one that straight-up forgives your debts .
Chapter 13 bankruptcy is more like a repayment plan and less like a total wipeout. With Chapter 13, you file a plan with the bankruptcy court detailing how you will repay your creditors. Some debts will be paid in full, while others will be paid partially or not at all, depending on what you can afford. Chapter 7 = wipeout. Chapter 13 = plan.
Prince Edward Island Exempt Property
If you are behind on child or spousal support payments, the above exemptions do not apply to any item but tools of your trade.
For details on what you can keep if you go bankrupt in Saskatchewan and the rules for bankruptcy exemptions in that province, please consult a Licensed Insolvency Trustee in Saskatchewan.
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Can I Stay In My Home While It Is Being Sold
Usually, if you are bankrupt, you are not expected to immediately move out of your home. In normal circumstances, the trustee will give you a few weeks to make alternative arrangements.
In some cases, the trustee may allow you to stay in your home during the selling period, provided you assist with the sale process, contribute a fair rent and maintain the home.
What Do You Lose When You File Bankruptcy
Most bankruptcy filers donât lose anything, actually. Property you own free and clear is yours to keep as long as thereâs a bankruptcy exemption to protect it.Â
Property that secures a lenderâs right to payment of a secured debt is yours to keep as long as you pay for it. The bankruptcy trustee doesnât even really get involved.Â
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If Your Home Is In Negative Equity
If your home is in negative equity, then you may be able to keep it. It won’t be sold unless the value of your share is more than £1000, after any sale costs have been taken off.
At two years and three months after the bankruptcy order is made, the situation will be reviewed. If your interest in the property is still valued at less than £1000, it’s unlikely the home will be sold and it will transfer back to you.
Home Equity Exemptions By State
If you want to keep your home in a bankruptcy, first look at your states laws to see how much equity you can exempt.
The amount of equity you have in your home is the difference between the current market value of your house and how much you have outstanding in loans or liens. So if your houses market value is $200,000, and you have $100,000 left on your mortgage, you have $100,000 of equity in your home.
Thats where your states homestead exemption laws come into play. If you have $100,000 of equity in your home, and you live in Wisconsin, where the homestead exemption is $75,000, that would leave $25,000 of unprotected equity. In that case, your home would likely be sold to repay some of your debts in a Chapter 7 bankruptcy. But if you had $15,000 worth of equity in your Wisconsin home, then all of your equity would be exempt and your house wouldnt be sold.
Its not common, but some states, including Florida and Texas, allow you to exempt all of the equity in your home if your property is under a certain acreage. Most states, though, have a cap. Meanwhile, a few states, such as Pennsylvania and New Jersey, dont allow home equity exemptions at all. You do have the option of choosing the federal bankruptcy exemptions instead. The federal homestead exemption is $25,150.
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How Your Equity Affects You In Bankruptcy
The market value of your house, minus what you owe on it, is home equity. Lets say the market value of your home is $250,000. You owe $195,000 to the bank on it. That means you have $55,000 in equity. In other words, if you sold your house tomorrow, after you paid what you owe, youd clear $55,000. The debt on your house not only includes the mortgage, but any home equity loans or lines of credit you may have, as well as liens.
The homestead exemption protects equity, up to a point. With the example above, if your state had a $50,000 exemption, then the bankruptcy court would only consider what came after that as equity $5,000. This is a simplification for explanation purposes fees for the bank and trustee are also subtracted, so it would, in reality, be less. If you were using the federal exemption, the exemption would be $29,850 in equity, minus the fees. If you live in a state that only allows you to use the state exemption, and the state exemption is lower, say $10,000, the court would consider $45,000 in equity, minus the fees.
As youll see shortly, while Chapter 13 is designed to help you keep your house, its difficult to do. The courts recommend people filing Chapter 13 bankruptcy hire an attorney or financial counselor who is an expert in bankruptcy to help you navigate the ins and outs.
Why You Should Never File Bankruptcy
Filing for Bankruptcy Doesnt Help Your Credit at All When you file for bankruptcy, youre giving your credit the death penalty. The bankruptcy and all of the accounts included in the bankruptcy will appear on your credit report for the next 7 years. Even a few years down the road, creditors will see you as high risk.
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Will Bankruptcy Affect My Credit
There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be badly damaged. Bankruptcy will probably not make things any worse. The fact that youve filed a bankruptcy can appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.
Is A Chapter 7 Bankruptcy Right For Me
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out your debts in exchange for your giving up property, except for exempt property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
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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.
Exemptions In British Columbia:
- No limit on clothing for you or your dependents; all clothing is exempt from bankruptcy
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $5,000; unless you are behind on child support payments, in which case the limit is $2,000
- Work tools and work-related property up to $10,000
- No limit on medical and dental aids for you or your dependents
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How To File Bankruptcy And Keep My House
You can often keep your house and car by claiming bankruptcy exemptions.
When you file for bankruptcy relief, you are entitled to use bankruptcy exemptions to protect the equity in some property from being used to repay your unsecured creditors. Bankruptcy exemptions apply to a wide variety of assets, including homes, vehicles, retirement accounts, clothing, tools of the trade, government benefits, and other personal property.
Where Will I Live If I Lose My Home Through Bankruptcy
Stop worrying and asking, Will I lose my house if I file bankruptcy? Even if you do, all hope is not lost! You can still have a new home even after bankruptcy.
Some programs are available to help you on your road to recovery. State governments and nonprofits have home-buying assistance programs that you can tap into. These include the following:
- Federal Housing Administration loans
- Veteran Affairs loans
- United States Department of Agriculture loans
- State housing finance agencies
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The North Carolina Homestead Exemption
In Rutherford County, you might be able to use the North Carolina Homestead Exemption to help you protect your home. According to this exemption, you may be able to exempt $35,000 of equity in your home.
Both spouses may be filed in the same application. However, if another individual also owns the house, they may file separately if they qualify for the exemption.
Also keep in mind that if you were temporarily absent from the home, that does not mean you are disqualified from the exemption. If your absence was due to health issues, and if your address is still your permanent residence, you may still qualify.
Your Home And The Chapter 7 Bankruptcy Trustee
Chapters 7 and 13 work very differently, so it’s important to understand what to expectespecially if you want to keep valuable property in Chapter 7. Here’s how it works.
After filing for Chapter 7, your property will go into a bankruptcy estate held by the Chapter 7 bankruptcy trustee appointed to your case. However, you don’t lose everything because you can remove property reasonably necessary to maintain a home and employment. The trustee will sell any remaining assets and distribute the sales proceeds to your creditors.
Here’s the tricky partif you make a mistake, it’s unlikely that the bankruptcy judge will allow you to dismiss the case, and you could lose the house. So you must follow the rules carefully.
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Farming Fishing And Aquaculture Exemptions
- If your primary occupation is farming, personal property used by you to earn income are exempt up to $10,000
- If your primary occupation is fishing, personal property used by you to earn income are exempt up to $10,000
- If your primary occupation is aquaculture, personal property used by you to earn income are exempt up to $10,000
Q2 Will The Trustee Immediately Sell My House
If you have significant nonexempt home equity you cant protect, the trustee will sell your property, following the usual real estate selling process. The trustee doesnt need to rush the sale because a quick sale would usually result in lesser value for your home, which is not going to benefit you.
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Downsides To Keeping Your House When Filing For Bankruptcy
You may desperately want to keep your house, even if youre so deep in debt youre considering filing bankruptcy. Thats understandable it not only has an emotional attachment, but could some day be an asset, even if youre behind on payments now.
That said, there are some financial downsides to hanging on to your house through a bankruptcy proceeding.
If you file for Chapter 13 bankruptcy, you have to continue making your monthly mortgage payments, as well as pay what you were behind on. This can be difficult, even if the payment plan that you, the court and your lenders agree to, seems to be doable.
Almost two-thirds of Chapter 13 bankruptcies fail. Its tough to keep to a payment plan over three to five years, even though modifications are allowed. Those involve going back to court and explaining why you need one. Through it all, you have to keep current on your mortgage payments, as well as all the other payments agreed to in the plan.
If you file for Chapter 7 and keep your house, you must make the monthly payments. The only hope for a modification, is the bank itself.
Bankruptcy, obviously, is complicated, and if youre worried about keeping your house, its even more so. If youre asking, Should I file for bankruptcy? your first move should be to talk to a credit counselor.
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How Do Bankruptcies Affect A Joint Mortgage
If one person files for bankruptcy, that can have an impact if you both are on the mortgage. There are instances where one persons bankruptcy can cause issues with keeping the home, even if more than one of you is on the mortgage. In order to be fully apprised of what can happen, talk to your attorney.
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Will I Lose My House
Whether or not you will lose your house depends on the value of your house, and the amount owing on your mortgage. Most people that declare bankruptcy in Ontario and own a house will have a mortgage on the house.
The Ontario Execution Act stipulates that your principal residence is exempt from seizure IF the equity in your home does not exceed $10,783. If the equity does exceed $10,783 then your principal residence is subject to seizure and sale.
In that case you are required to pay the equity in your house if you go bankrupt. . For more information read our FAQ What Happens To My House In A Bankruptcy?
How Does Chapter 7 Bankruptcy Affect My Existing Mortgage
When you file Chapter 7, your existing property will be deemed either exempt or nonexempt. Exempt means youll be able to keep the property throughout the bankruptcy process, as long as you can catch up and stay current on your payments.
Nonexempt means you will either be required to surrender the property or pay its value in cash as a part of the bankruptcy. In some cases, people are allowed to keep nonexempt properties. It all depends on the bankruptcy trustee and how they choose to handle the property.
To understand how Chapter 7 impacts your existing home mortgage, you must first understand the difference between a loan and a lien.
When you get a mortgage, your mortgage company gives you a loan. They let you borrow money in order to buy a property. When they do that, they place a lien on the property. A lien is a right or interest in the property that the mortgage company has until the debt is paid in full.
When you file Chapter 7, you are no longer legally obligated to repay the loan. Legally obligated is the key phrase here because Chapter 7 does not get rid of the lien on the property. Your lender still has a right to the property if the debt is not paid.
So basically, you dont have to pay your mortgage. But if you dont you will lose your property because your lender will likely enforce the lien they have. If you are able to keep your home as part of Chapter 7, its probably a good idea to do everything in your power to keep paying your mortgage loan.
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Different Ways To File For Bankruptcy
Bankruptcy is a process in which the court decides what the best route is for a person with overwhelming debt to pay as much as possible, given their assets. The solution may be Chapter 7, which discharges debts but also liquidates assets, though not all, of a persons assets. Chapter 13 bankruptcy allows a person to keep their assets, but puts them on a strict repayment plan.
No matter which type you file for, the court puts an automatic stay on any foreclosure action. This means that if your house was being foreclosed on, that procedure will stop as the court sorts out your ability to pay. It doesnt mean, however, you automatically keep your house.
In both types of bankruptcy, there is a homestead exemption, a way to protect some of the equity you have built. Its another element of bankruptcy designed to make it more possible to keep your house. Each type of bankruptcy is a totally different process, but in each, the idea behind exemptions is that the person needs to protect some important assets in order to get by. There are also exemptions for keeping your car and other necessary items. The amounts vary by state, but the types of things you can exempt are limited to what you need to get by. Luxury items are not on the list.
You are required to have lived in a state, in that house, for 40 months, in general, to claim a state exemption. Check with your state rules to see what the details are.
Can You Protect Your Home Equity With Bankruptcy Exemptions
State exemption statutes list the property its residents can protect in bankruptcy. Some states allow residents to choose between either the state exemption list or the federal bankruptcy exemption scheme. Either way, almost all states allow residents to protect some home equity with a homestead exemption. You might be able to exempt even more with a wildcard exemption.
If your exemptions adequately cover your equity, the trustee won’t sell your home in a Chapter 7 bankruptcy. However, if your exemptions protect only a portion of it, the trustee will sell the house, pay off the mortgage, give you the amount you’re entitled to exempt, and use the remainder of the sales proceeds to pay creditors.
Keep in mind that the trustee will take into account the costs to sell the home. If, after deducting sales costs, the amount remaining isn’t enough to make a meaningful payment to creditors, the trustee will abandon the property .
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