3 Tips For Saving Your House In a Bankruptcy

Many believe that you always lose your home in bankruptcy, but that isn’t true. There are ways that you can keep your home in a chapter 7 bankruptcy if you’re current on your payments, and you can protect your equity with a bankruptcy exemption. 

Keep reading to learn more about how you can save your home if you file bankruptcy, and talk to an experienced bankruptcy attorney if you have more questions. 

Bankruptcy Can Help You Keep Your Home

Many people don’t understand this critical point about filing. Bankruptcy can discharge many debts you cannot pay, such as credit cards, auto loans, personal loans, medical debt, etc. 

When you don’t have thousands in interest payments draining your bank account every month, you may be in a better position to afford your mortgage! 

To keep your home, you’ll need to be current on your mortgage when you clear bankruptcy. If you owe back payments, you may be able to work with your mortgage company about a repayment plan. 

Remember, most mortgage companies don’t want to foreclose; it’s an expensive process for them, and they’d rather keep you in the house if you can get back on track financially. 

Just communicate with your loan provider as much as possible to determine if you do something to reduce what you may owe in back payments, such as reducing the rate or making a loan modification. 

How To Protect Your Equity

Depending on your state of residence, you may be able to shield all of your home equity in a Chapter 7 bankruptcy. 

For example, Texas has a homestead exemption enshrined in its state constitution. This means that no creditor can take your home or any of your equity as long as you’re current on your loan. 

However, not every state offers this total exemption; some offer an exemption on your equity to a specific sum.. The rest can be tapped during bankruptcy to pay your creditors. It’s critical to talk to your attorney about how much your home and equity are protected in your state. 

You Can Keep Your Home, If….

As noted earlier, you can protect the house from being taken in bankruptcy in many states if you’re current on your payments. And, you’re covered if you can shield your equity with an exemption for bankruptcy. 

Also, you’ll need to show your mortgage company that you’re back on track financially and you can make your payments on time. 

If you want to keep your home and are having trouble making up the skipped payments, many mortgage companies are willing to work with you to get that money paid back. The key is to communicate with them and let them know what you want. 

Consider Giving Up Your Home In This Situation 

While keeping your home is a noble goal, there are cases where it isn’t a good idea. You may want to let the home go during bankruptcy. 

Why would you do this? 

First, remember that bankruptcy won’t make up for your late payments. Unless you can agree to a loan modification with your lender, you’ll lose the house in bankruptcy. But your lender may work something out, so talk to them. 

Second, if you have a second mortgage, you may owe much more on the home than it’s worth. If the real estate market is declining, you could pay thousands of dollars per month on a house that isn’t worth what you owe. 

If the market appreciates, it may be worth it to be ‘underwater’ temporarily and make your payments. But you should talk to an attorney and a real estate agent who knows the area to make this decision. 

You can often keep your house during bankruptcy, but you should review your case with a qualified attorney to determine if this is a good move.