You may know that bankruptcy is the right choice for you. Perhaps an unexpected event, such as a job loss or illness, has thrown your financial life into chaos, leaving you with overwhelming debt you know you cannot pay back.
One of the biggest worries people have when it comes to filing for bankruptcy is that they will lose their home. A home is typically people’s most major asset.
Additionally, our homes often hold sentimental value or provide us with a sense of stability and comfort. This is especially true for people who have lived in their homes for several years or decades.
Fortunately, there are ways you can potentially file for bankruptcy while keeping your home. One of your first decisions to make is whether to file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 or Chapter 13?
A Chapter 7 bankruptcy discharges all your qualifying debts, allowing you to start over financially. Chapter 13 bankruptcy consolidates all your qualifying debts into one while you pay them back through a three-to-five-year payment plan.
Chapter 13 bankruptcy usually allows you to keep your home, provided you can afford to keep making your mortgage payments.
If your home was already in foreclosure, your mortgage payments could become part of your bankruptcy payment plan. If not, you will continue to make your mortgage payments as usual.
Keeping your home in a Chapter 7 bankruptcy can be tricky, although it can be done in many situations. Discharging your debts in Chapter 7 means using your assets to pay them off.
Your home’s equity is a factor
This means if you have a decent amount of equity in your home, the bankruptcy court might order that your home be sold to pay off your debts as part of the bankruptcy.
However, if there is little to no equity in your home or if you are already behind on payments, selling your home will have no impact on your bankruptcy debts. You will then typically not be forced to sell, although you will need to find a way to pay your mortgage to keep your home.