Many people worry about losing their home if they file for bankruptcy. Whether it is possible to protect a home or forestall foreclosure during bankruptcy proceedings depends on individual circumstances.
Not all bankruptcies result in a lost home. For example, an individual who files a Chapter 7 Bankruptcy may be allowed to keep his or her non-homestead home if there is not enough equity in the home to repay a substantive portion of their debt and/or if mortgage payments on the home have been kept current.
In addition, a Federal or State homestead exemption may protect the debtor’s equity in the home. When a court’s review finds significant equity in a home, the Bankruptcy trustee must determine if a sale would make sense—in other words, if there will be enough proceeds from the sale to warrant a creditor repayment plan. The trustee will factor in the amount of homestead exemption to which the homeowner may be entitled, the total mortgage balance, costs of selling the home, the amount of tax liens and other liens, as well as the trustee’s commission. These items would be subtracted from the home’s market value to determine whether there is enough equity in the home to pay unsecured creditors.
When a trustee deems that there is sufficient equity to pay creditors, the trustee may require that the house be sold. In that event, the homeowner would be given the percent of the sale equal to the homestead exemption, if there were one. Florida does have some of the best homestead exemptions available but you must speak with an experienced bankruptcy attorney to see how these exemptions would affect you.
If you are falling behind on loan payments, and considering filing for bankruptcy, it may be possible to protect your home by negotiating a more affordable payment plan with your mortgage lender before you file for bankruptcy. Also, refinancing or modifying your loan payments could make it easier for you to make on-time mortgage payments.
Under a Chapter 13 bankruptcy reorganization, your Bankruptcy trustee may be able to include any arrears on your current mortgage in your bankruptcy payback plan so that you can remain in your home.
If you have questions about how to protect your home from foreclosure or impending bankruptcy, please contact an experienced lawyer. Know your Options, Know the Law!