A question clients always ask about bankruptcy: can i keep my home? I understand that the thought of losing everything that you have worked for is terrifying. Yet surprisingly, very few of my clients lose their home (or any property) after filing bankruptcy. Here’s why:
If we decide that Chapter 7 bankruptcy is the best option for you, consider that in 2010 over 1 million Chapter 7 bankruptcies were filed, yet in over 94% percent of the cases the debtor didn’t lose their home (source). The reason is that the Bankruptcy Code provides for protections (called exemptions) for your property up to a certain value depending on the type of property it is. In addition, you only need to protect the value of your property that is greater than the amount you owe on it.
For example, as a single Chapter 7 bankruptcy filer, in Michigan you can protect almost $23,000.00 of your home’s value. If your house is worth $110,000.00 and you have a $100,000.00 mortgage, you only need to protect the $10,000.00 value above your mortgage.
In addition, there are exemptions for household goods, furnishings, clothing, vehicles and and several others items. And some of your property is completely protected like 401K retirement accounts that are exempt from taxation.
So what happens if you are one of the minority of people with property that cannot be protected? If you have money left over in your monthly budget that you can pay to the trustee, you have two options:
1. If you have enough left over that you can pay the Chapter 7 trustee the portion that you can’t protect, the trustee will typically prefer payments instead of the hassle of trying to sell your property.
2. If you have money in your monthly budget to pay to the trustee, but not enough to repay it in 12 – 18 months, you could file a Chapter 13 bankruptcy, and take up to 5 years to pay off the unprotected amount.
If you can’t repay your debt through either one of these options, you can consider surrendering the property to the trustee. All of these options should be discussed with an experienced bankruptcy attorney, as there are many variables to consider, including familiarity with the trustees in your jurisdiction.