After a long period of nonpayment, your creditors may pursue payment by filing liens against your assets, including real estate. Filing bankruptcy may help you erase some of your debts and pay back others, giving you a second chance. Depending on the type of bankruptcy you file and the type of land you own, you may be able to prevent your creditors from taking your land during your bankruptcy case.
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Chapter 7 bankruptcy is a liquidation, or sale, of a debtor’s nonexempt assets. The court-appointed bankruptcy trustee who administers a debtor’s bankruptcy case can sell the debtor’s nonexempt assets to pay his creditors. In many cases, however, the trustee does not have much available to sell once the debtor’s exempt assets are removed from the debtor’s bankruptcy estate. Every state has exemptions to allow debtors to keep some important assets to get back on their feet after the bankruptcy case. The exemptions available -- and the amount of those exemptions -- vary from state to state.
Homestead and Wildcard Exemptions
A homestead exemption allows the debtor to keep a certain amount of equity in his primary residence. If he owns acreage as part of that residence, he may also be able to keep a certain amount of land under a homestead exemption, depending on state law and where the acreage is located. Some states also permit a “wildcard” exemption that allows a debtor to keep any asset he chooses as long as it does not exceed the maximum amount of the exemption.
Reaffirmation and Redemption
If a creditor holds a mortgage on the land, you may be able to keep it from being foreclosed by signing a reaffirmation agreement. A reaffirmation agreement is a new contract between the debtor and creditor whereby the debtor promises to pay the loan after the bankruptcy is complete. A debtor can also pursue a redemption of the land if he owes more than the land is worth. Redemption allows him to pay only the value of the land, not the whole amount of the loan, but he must be able to pay immediately.
Land as Income
If you own land that produces an income for you, you may not be able to keep it in Chapter 7 bankruptcy if you cannot find an exemption it fits. However, you may be able to keep it if you file Chapter 13 bankruptcy instead because Chapter 13 bankruptcy does not involve selling assets. Rather, Chapter 13 bankruptcy reorganizes your debts to be paid back with a repayment plan spanning a three to five year period.