One of the most common concerns that come up when a person considers bankruptcy is whether or not they can keep their home while discharging their debts. Often, individuals considering bankruptcy believe that they must sacrifice all of their possessions in order to discharge debts, but this is rarely the case.
Bankruptcy’s purpose under the law is to give borrowers an opportunity to wipe the slate clean and make a fresh financial start. In order to “balance the scales” in the eyes of the law, discharging debt requires borrowers to accept some restrictions against further borrowing for a period of time, and may require forfeiting property, depending on the type of bankruptcy filed.
Both Chapter 13 and Chapter 7 offer borrowers opportunities to keep their home throughout the process, but it is not automatic. Achieving a successful bankruptcy requires detailed understanding of the complexities of the law and a strong bankruptcy strategy. Creating your own bankruptcy strategy can help you protect your home and protect your rights as you work toward the financial relief that you need.
Chapter 13 versus Chapter 7
In general terms, a Chapter 13 bankruptcy allows individuals with sufficient income to reorganize their debt and may of some or all of it on an approved repayment schedule. If a borrower’s debts and income qualify them for Chapter 13, then they may not need to forfeit any of their property, although they may still experience other restrictions throughout the process.
Chapter 7 offers relief to borrowers who do not have the income to repay their debts by forfeiting certain portions of their property. However, even borrowers who file Chapter 7 may still use housing exemptions to keep their home, depending on how much equity they have in the home. If they have little or no equity built up, then they may be able to keep the home outright. If they have significant equity built up in the home, the bankruptcy may force them to sell the home to repay other debts. Even in these cases, the borrower may still have an opportunity to buy the home back from the trustee overseeing the bankruptcy.
Keeping up with the mortgage
Another key factor when it comes to keeping a home or forfeiting it is whether or not a borrower can make their mortgage payments. For many borrowers, discharging their other debts allows them the financial freedom to make their mortgage payments, but not always. If a borrower keeps their home during bankruptcy but falls behind on payments, they may still lose their home.
Whatever financial difficulties you face, it is worth considering all of your options carefully, but not so long that you fail to take action. The sooner that you move forward with your plan to discharge or repay debt, the sooner you can enjoy the benefits of financial freedom.