If you are struggling to pay your bills and are considering filing bankruptcy, your first question might have could be about the future of your house. Will filing for Chapter 7 lead to losing your house or will you be able to keep it? Your decision about filing for bankruptcy might depend on the answer to this question, and you can find this out by visiting a bankruptcy attorney. Here are the three main ways filing for Chapter 7 could affect the house you own and live in.
You Could Keep The House
Under certain circumstances, bankruptcy trustees will allow Chapter 7 filers the ability to keep their homes. There are several situations that could lead to this option, but the main circumstance that will decide this is the amount of equity you have in your home.
When you meet with a bankruptcy lawyer, the lawyer will want to know:
- How much your house is worth – There are several ways to find out the value of your house, but a simple method is to look at your property tax statement. This statement will show your home's assessed value for property tax purposes, and you can use this amount in bankruptcy.
- How much you owe on your house – This includes the amount of your first mortgage and any additional mortgages you may have on the house.
If you owe almost as much or more than the amount your house is worth, there is a good chance you will not lose your house when filing for Chapter 7. The reason is because the trustee will have no purpose in having you surrender your house. If the trustee cannot make money by selling the house, it would be pointless for him or her to take the house from you.
The other circumstance that your lawyer will look at involves your current status on the mortgage loan. If you are not behind on your payments, you will have a better chance of being able to keep your house if you file for Chapter 7.
Your Lender Could Foreclose
If you are behind on your payments, filing for Chapter 7 might give you relief for a few months, but eventually your lender might foreclose on your house. This would only happen if you are behind on your payments, and if the trustee lets you keep your house.
To avoid foreclosure of your home, you would have to find a way to catch up on your past-due payments. Your bankruptcy attorney might be able to work out a home modification agreement with your lender if you do not have a way to repay the past-due balance. If you can use a home modification loan, you could avoid foreclosure, and you would have a way to set up new terms for your home loan.
Your House Might Get Seized
The final thing that could happen to your house when you file Chapter 7 is the trustee might seize it. Trustees generally will seize homes from people that file Chapter 7 if there is a lot of equity available. With a lot of equity, the trustee could sell the home for a profit. The money earned could then be used to repay creditors.
When the trustee looks into the equity amount of your home, he or she will also consider the Homestead exemption amount offered in your state. This amount is subtracted from your actual equity, and this offers the equity amount the trustee is interested in. If this amount is low, the trustee is not likely to want your house.
The good news is that a bankruptcy attorney will usually be able to tell you the likely outcome of your house before you file, and this could help you decide if filing is right for you. To learn more about your house and Chapter 7, contact a bankruptcy attorney in your area.