If worries about your house are keeping you from filing for bankruptcy, you are not alone. Lots of people are afraid that bankruptcy automatically means losing the house.
In truth, much depends on your bankruptcy strategy. And developing the right one will mean asking a series of important questions.
Are you current on your payments, and how much equity do you have in the home?
If you’re current on your mortgage payments you have more options than if you’re behind. Because it allows you to keep your house either in Chapter 7 or Chapter 13 bankruptcy.
As long as the level of equity you’ve achieved in the home is covered by federal or Pennsylvania state exemptions (you and your attorney can choose which to use) all you have to do to keep your home is reaffirm the debt at the proper time, and then continue making payments.
If you choose not to reaffirm the debt then the trustee will sell your home, but you’ll receive a check for the exemption amount of the equity, and that can often be enough to help you start over elsewhere.
Is holding on to the home even right for you?
Many people we talk to are not current, and/or their equity is too great to be covered by exemptions.
If that’s the case, it’s time to have a serious discussion about whether you should be hanging on to the house. Will you be able to pay for it when relieved of all your other debts, or will it be a source of financial strain?
Is there any chance for a permanent loan modification that could make the house feasible for you?
If holding on to the home is the right choice, then it’s time to explore Chapter 13 bankruptcy. This will allow you to keep the home while making payments on it through your Chapter 13 plan. It may buy time to finish a loan modification request.
If holding on to the home is the wrong choice, then you may just want to file Chapter 7 and let it go. You may not even have to leave right away, as the trustee and the bank will have to take the home through the standard foreclosure process, which the automatic stay will prevent until your discharge. That will mean having plenty of time to pack your boxes.
See also: What is an Unconscionable Home Loan?
Did you work with an experienced bankruptcy attorney?
There are lots of mistakes you can make with any strategy that would leave your home vulnerable to seizure. If you allow yourself to believe that spending a few hours on the Internet and printing out some forms will make it easy for you to file bankruptcy you could easily make one of them.
Keep in mind that there are issues that arise in bankruptcy that attorneys have to argue over just like any other legal matter. Exemptions and how they work aren’t always terribly clear cut.
So, like most things involving the law, the answer to “what happens to my house in bankruptcy” is truly, “it depends.” The real question is what you want to see happen with the house, so that you can work with an attorney who has a good chance of making it happen.