Can a Primary Residence Be Seized if You File for Bankruptcy?

By Heather Frances J.D.

Although filing for bankruptcy can help avoid being overwhelmed by debts, you may not be able to keep all your assets. This depends on the type of bankruptcy you file and whether you take the necessary steps to keep your home. However, your situation may require you to consult with a bankruptcy attorney if it’s too complicated to make these decisions on your own.

Although filing for bankruptcy can help avoid being overwhelmed by debts, you may not be able to keep all your assets. This depends on the type of bankruptcy you file and whether you take the necessary steps to keep your home. However, your situation may require you to consult with a bankruptcy attorney if it’s too complicated to make these decisions on your own.

Chapter 7 vs. Chapter 13

Individuals commonly file bankruptcy under Chapter 7 or Chapter 13 of the bankruptcy code. In Chapter 7 bankruptcy, a bankruptcy trustee will liquidate your non-exempt assets and use the money from the sale of those assets to pay your debts. Chapter 13 bankruptcy allows you to obtain court approval for a repayment plan in which you make payments on your debts over a three-to-five year period. Your Chapter 13 plan is also administered by a bankruptcy trustee, but your assets are not liquidated. At the completion of either type of bankruptcy case, most debtors receive a discharge – or elimination – of certain remaining unpaid debts.

Get a free, confidential bankruptcy evaluation. Learn More

Your Home under Chapter 13

Chapter 13 bankruptcy is designed to help you keep your home. Once you file under Chapter 13, you receive an automatic stay of collection efforts, including collection on your mortgage debt. Thus, your mortgage lender must stop all foreclosure efforts they may have started. The Chapter 13 repayment plan allows you to catch up on your past due mortgage payments over the period of the plan, and you are allowed to prioritize your debts as you see fit. This means that you can make higher payments on your mortgage than you make on other debts, if keeping your house is your goal. Additionally, Chapter 13 allows you to receive a discharge of an unsecured mortgage on your home.

Chapter 7 Exemptions

A Chapter 7 bankruptcy trustee only liquidates your non-exempt assets, so you are allowed to keep your exempt assets under either federal or state exemptions. Every state provides at least one exemption, called a homestead exemption, which enables you to keep your home, if you qualify. The bankruptcy court will look at the laws of the state where you lived for the two years before you filed for bankruptcy, but federal law places a cap on the allowable exemption. You are not allowed to exempt more than $125,000 of equity in a home you bought less than three years and four months before you filed bankruptcy. Even if you use your state’s homestead exemption, you must keep up your mortgage payments, insurance and property taxes to avoid losing your home. Otherwise, your mortgage lender can petition the court to remove the stay and allow foreclosure.

Reaffirming Your Mortgage

Once your Chapter 7 case is complete, many of your unpaid debts will be discharged, including your mortgage, and you are no longer personally liable for those debts. However, your lender’s lien on the home is not discharged, so the lender can foreclose on the property and you will lose your home. If you prefer to stay in your home and to keep making your mortgage payments, you can “reaffirm” the mortgage. A reaffirmation reinstates your personal liability for the mortgage debt and prevents the mortgage company from foreclosing.

Get a free, confidential bankruptcy evaluation. Learn More
How to File for Bankruptcy for a Voluntary Repossession

References

Related articles

Advantages & Disadvantages to Declaring Bankruptcy

Bankruptcy is a court process available by federal and state laws to help both individuals and businesses shed unsustainable debt and get back on their feet financially. It offers a second chance at a clean financial slate, but it also has disadvantages. Bankruptcy may not be your only option to resolve your debts, but its advantages may outweigh the disadvantages in your particular situation. You may wish to consult an attorney before deciding whether bankruptcy is the best option for you.

Can a House Be Sold If You Are Going Through Bankruptcy?

Your house is usually your most valuable asset, especially if it is worth far more than you owe. Depending on the type of bankruptcy, you might have the option to keep your house or voluntarily sell it. On the other hand, the court-appointed bankruptcy trustee may force the sale. However, bankruptcy may even allow you to keep your house if you are facing foreclosure.

What Happens if a Bank Discharges a Home Loan During a Bankruptcy?

At the end of a bankruptcy case, you will receive a bankruptcy discharge that relieves you of all financial obligations toward the debt. The discharge also applies to home mortgages. Depending on whether you file for Chapter 7 or Chapter 13 bankruptcy, and whether you are current on your monthly payments, you may have several options if you would like to keep your home.

Related articles

Can I Convert to a Chapter 7 Without Losing My House or Car?

When you file for Chapter 13 bankruptcy protection, the court requires you to make payments on a three to five-year ...

What Happens When You Reaffirm a Vehicle After Bankruptcy?

Bankruptcy allows you to get a fresh start financially, clearing up debts by paying some and dismissing others. Filing ...

How Does Bankruptcy Affect Homebuying?

Bankruptcy can give you a fresh financial start by allowing you to restructure or erase your debts under a ...

How to File Bankruptcy While on SSI & Disability

Bankruptcy often provides a fresh start for those who are overwhelmed by debts and at risk of losing their homes or ...

Browse by category
Ready to Begin? GET STARTED