Will I lose my home with Chapter 7?

Will I lose my home with Chapter 7?

| Dec 29, 2020 | Chapter 7

Separating fact from fiction is vital when you are going through the bankruptcy process. While bankruptcy can represent a fresh start, the rumors surrounding the process can be frightening. 

For instance, many Americans believe that they will automatically lose their home if they file for bankruptcy. This is not true, and, in fact, most bankruptcy filings do not end with property loss. According to Findlaw, whether or not you lose your home depends on what type of bankruptcy you are filing and the amount of equity in your property. 

Why does bankruptcy type matter?

If you are filing for bankruptcy as an individual citizen, it is highly likely that you are filing either Chapter 13 or Chapter 7. With a Chapter 13 bankruptcy, there is no chance that you will lose your property. In fact, the entire point of a “reorganization” Chapter 13 bankruptcy is to avoid property loss. 

The only possible way to lose your home is if you file a Chapter 7 bankruptcy. A Chapter 7 bankruptcy liquidates your property to pay off your creditors as much as possible, and this is where you may lose your home. 

What is equity?

Equity is a calculation. It is the difference between what your property is currently worth on the market and the mortgage or any other home equity loans that you have on the property. If this number is positive, it is possible that you will lose your home as part of a Chapter 7 bankruptcy. If you have negative equity in your home, it is likely that the courts will exempt your home from the bankruptcy process.