You may be in a situation where you are struggling with overwhelming debt that you know you cannot pay back but you are afraid to file bankruptcy because you do not want to lose your home.
This is understandable. Losing a home is a frightening and stressful experience. Your home provides a sense of safety and comfort and may hold many happy memories.
You do not have to lose your home
It is a common myth that if you file for bankruptcy, you will lose your home. The truth is that there are ways that you can keep your home while still filing for bankruptcy.
In fact, one of the purposes behind bankruptcy laws is to allow people to keep assets such as a home and maintain at least a minimum standard of living.
Whether or not you can keep your home when you file for bankruptcy depends on various factors, including the type of bankruptcy you file and your current mortgage situation.
Chapter 7 and Chapter 13 bankruptcies
A Chapter 7 bankruptcy discharges all your qualifying debt, while a Chapter 13 bankruptcy reorganizes your debt into a 3-to-5-year repayment plan.
If you file a Chapter 7 bankruptcy, your discharged debt could provide you with extra income to make your mortgage payment or catch up on payments. A Chapter 13 repayment plan could give you manageable monthly payments that allow you to also make mortgage payments.
What if my home is in foreclosure?
Your home might already be in foreclosure, but when you file for bankruptcy, something called the automatic stay goes into place. This is a mechanism that freezes all debt collection action, including the foreclosure process.
However, you must still show that you can make your mortgage payments. If you are still unable to make them after a Chapter 7 discharge or in a Chapter 13 repayment plan, you could still be in danger of foreclosure.
Homestead exemption
There is also a federal homestead exemption that can protect you. This allows you to protect a certain amount of equity in your home.
These are some examples of ways you can potentially keep your home after a bankruptcy. It is best to consult a professional to learn the best way to achieve this goal.
