A common question weighing on the minds of those who are still making mortgage payments on their home and facing bankruptcy is “will I have to give up my home?” The answer to this lies in understanding the options available to your unique situation. It is possible to keep your home when filing bankruptcy if you meet necessary requirements.
To protect your home during bankruptcy, be aware of how much equity you have in your home and how you can protect that equity. If you’re making mortgage payments, you may have a certain amount of equity that’s exempt. This means a creditor can’t NOT touch this amount to satisfy debts you owe. Every state has a specific level or amount of “homestead exemption” which allows homeowners protection against debtors.
This homestead exemption is protection at the state level. However, there may also be help available at the federal level. Sometimes, if your state allows it AND you qualify, you may be able to use both kinds of exemptions( the state and the federal). A good example would be that if your state exemption protects you up to a certain level, then the federal exemption, often referred to as a wild card exemption, can protect your remaining equity. You may also be pleasantly surprised to learn that there are other exemptions available for items such as: household goods, jewelry, vehicles, retirement accounts and other personal assets.
Take heart. In most cases, you will not lose your home or even your car for that matter as long as your equity is fully exempt. Even if your property is not fully exempt you may be able to keep it if you pay its non exempt value to the creditors.
However, be aware that if you’ve ever put your home up as collateral for a debt, then that creditor has a “security interest” in your home that does not go away with bankruptcy. If you’re unable to pay that interest, this creditor can repossess your home during or after bankruptcy.