Many people struggle for years with high debt and aggressive creditors instead of pursuing bankruptcy. They may worry that declaring bankruptcy will ruin their credit, take away their car and maybe even their house. Losing a house is a particularly strong pain point. Homes are central to our lives – they carry special memories, provide shelter and represent a family’s unique personality.
The prospect of losing a home may keep some individuals from declaring bankruptcy out of fear. The idea of bankruptcy may be intimidating, but in reality it is a tool that helps people get out of debt and start over. What actually happens to a person’s house when they file for chapter 7 bankruptcy?
Under chapter 7 bankruptcy, you will have to turn over some of your assets to the “bankruptcy estate.” The assets that you turn over go towards paying off your debts. These might include expensive family heirlooms, second cars, investments or select pieces of jewelry.
Certain assets, including all modern day necessities, are exempt from liquidation. This is known as “exempt” property. You are able to hold onto your family home, along with other key assets including:
- Reasonably priced vehicles
- A portion of your wages
- Public benefits
- Personal injury damages
This does not mean that you are able to retain any and all houses. If you live in an extravagant home, or have a vacation home, you should expect to turn over these properties. If your family home is considered overly extravagant, you will have to find a more affordable housing option; however, the court will not leave you entirely without a house.
Even if you are allowed to keep your home during the bankruptcy process, you may want to consider relocating to a smaller home with lower mortgage payments.
Bankruptcy does not eliminate mortgage payments. You still need to make regular payments to avoid foreclosure. If your payments are higher than you feel comfortable paying, consider proactively downsizing to keep your finances under control.
If you are considering bankruptcy, contact an attorney who can help you evaluate your options and determine what opportunity is right for you.