by keith reid-cleveland
Bankruptcy can be the best option to get out of debt in extreme cases. While it's often costly, it doesn't mean you have to lose everything to start over.
Bankruptcy doesn't mean you have to lose the home you love.
Bankruptcy is a way of paying back debt you can’t afford by selling off assets or restructuring payments. The most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.
Often called “liquidation bankruptcy,” Chapter 7 involves selling off assets to cover debts, such as stocks or bonds.
Chapter 13, often called “reorganization bankruptcy,” involves creating a new structured payment plan, usually in 3-5 year increments.
Keeping your home in bankruptcy depends on a few key factors.
Which assets can be used to pay back debt change depending on which kind of bankruptcy you qualify for and file.
Equity is any profit you'd make if you sold your home for more than you owe on your mortgage. Depending on which bankruptcy you file, your equity may be protected in part or in full.
Most states have exemption laws that protect home equity to a point. There are also federal exemption laws and you may be able to choose the best one for you.
In short, keeping your home while filing bankruptcy is possible if you have enough money in assets to cover your debt or work on a new payment plan.
If you're considering filing for bankruptcy, talk to an expert to explore options.