The number of seniors filing for bankruptcy has increased by 500% over the last 20 years. Almost 100,000 senior households filed for bankruptcy last year.
One of the biggest questions is: Can you file bankruptcy and keep your house? What’s even scarier is that the answer is “maybe.”
Don’t panic just yet! We’ve created a guide to help you understand your options so you can make the best choice for you. That way you can make sure you do keep your home.
Can You File Bankruptcy and Keep Your House?
There are three common kinds of bankruptcy that you can file under. Whether or not you are at risk to lose your home depends on what type you file under and the total worth of your assets.
Chapter 7
The most common type of bankruptcy is Chapter 7. When you file under this type, you are saying you have no disposable income to pay your debt. You want to have the debt eliminated.
The court won’t just wipe the slate clean though. As part of the process, your assets will be seized and sold off. The proceeds from the sales will then go to pay off a portion of your debt.
Exempt Assets
There are certain things that are exempt from the seizure process. Your cash, cars, and home will be exempt. This is based on their worth though.
The homestead exemption applies to the equity you have in your home. You can exempt home equity up to $60,000. The equity is the value of the property minus what is owed on the property.
While $60,000 doesn’t sound like much, married couples can each claim their own exemptions. So the total exemption for your home would be $120,000.
If you happen to be elderly or disabled, the exemption amount goes up to $90,000.
You Could Lose Your Home
If all of the equity that you have built up in your home is not covered by the exemption, the trustee could elect to liquidate the asset. Then you’d get a cash distribution.
If this happens, you get the value of the exemption in cash. You could choose to take control of this process by selling your home quickly.
Elect to Keep the Debt
One way you can keep your home is by electing to keep the debt. The problem with this is that you have to be up to date on your payments. If you do decide to reaffirm the debt, you cannot try to void the debt for the next eight years.
Switch to Chapter 13
A common strategy for people filing is to start out under Chapter 7. They then realize that they are at risk of losing their home.
If you talk to an attorney and realize that you could manage a payment plan, you can switch your filing to Chapter 13. This will save your home.
Chapter 11
When someone files for Chapter 11 bankruptcy, the debtor and creditor work together to restructure their agreement. The goal is to create more affordable monthly payments by extending the repayment period. They are not popular in Colorado; only 60 were filed last year.
Corporations are the ones that typically file for Chapter 11 bankruptcy. While individuals can file for Chapter 11, for most it won’t be the best option.
Professional doctors, lawyers, and accountants are the individuals who will typically file. This is because they owe a huge amount of debt that is associated with their practice. Their secured debt is larger than the asset value.
They have a healthy cash flow, though. This makes it possible for them to restructure the debt.
Chapter 12
Unless you are a family farmer, this is not the bankruptcy for you. If you happen to qualify as a family farmer or fisherman, this form of bankruptcy will let you restructure your debt so that you can avoid having your farmland foreclosed on or liquidated.
Chapter 13
While the focus of Chapter 7 is to liquidate, Chapter 13 focuses more on debt adjustment. When you file, you will have to submit a plan for how you intend to pay the debt or part of the debt.
Your repayment plan will be a maximum of five years. Your total asset value will also be taken into consideration when determining what you can afford as a monthly payment.
Keep Your Home
As long as you can afford your payment plan, you can keep all of your property. The exemptions no longer matter.
Once you have your agreement, and you meet the terms, you have foreclosure protection. This means you can protect yourself from the risk of losing your home if you are currently struggling to make your payments.
Sell Your Home
Some people might find that their monthly payment is higher than what they can afford. In this case, Chapter 13 isn’t possible for you.
What you can do is sell your home and use the money to pay off a portion of your debt. Then move on to file Chapter 7 bankruptcy.
Protect Your Home
So now you should know the answer to the question, “Can you file bankruptcy and keep your house?” You might be able to keep your home depending on what chapter you file and how much equity you have. With a little preparation and planning, you can keep your home through the bankruptcy process.
You may decide that the better option is to sell your home. If this is the case, you may not have time to wait and want to sell your home right away. This will liquidate your asset and give you an injection of cash.
Need to sell your house fast? Contact us today and let us help you.
