Saving your home from foreclosure by filing for bankruptcy

Some people file for bankruptcy in an effort to save their home from going into foreclosure. But does that work? In some cases it will, but in some cases it won’t. If you are filing for Chapter 13 bankruptcy, there is a good chance that you will be able to keep your home because you will be required to continue making mortgage payments as well as paying back the payments you have missed. But if you are filing for Chapter 7 bankruptcy, filing may not help to save your home. The biggest determining factor is based on how much equity you have in your house and whether that equity amount is within the allowed exemption amount.

The first thing you must do is figure out how much equity you have in your home. Once you find out how much your home is currently worth, subtract the amount you still owe from that amount. That will tell you the amount of equity you have. For example, if your house is worth $200,000 and you have $185,000 worth of mortgage loans still owed, your equity would be $15,000.

The current federal homestead exemption is $18,450. Some states have their own homestead exemption amounts as well. So you will want to know what your states’ exemption is as it may be more or less than the federal exemption. If you have less than $18,450 in equity in your home, you may be able to keep it. But if you owe more than the exemption amount, you may be at risk of losing your home.

You may still be able to keep your home if you can pay the difference between the exemption amount and the equity you have from sources other than your bankruptcy estate (chances are you cannot do that though if you are filing for bankruptcy). If the cost of selling your home would be more than the nonexempt equity amount the trustee of your case may allow you to keep your home as well.

Note that there are some types of dwellings that do not qualify for the homestead exemption in certain states such as mobile homes and coops. And some states base their exemption on the lot size of your property.

Before deciding to file for bankruptcy to try to save your home, become familiar with your states’ exemptions to try and determine if filing for bankruptcy will allow you to save your home.

This entry was posted on Wednesday, October 24th, 2007 at 9:04 am and is filed under Filing Bankruptcy, Bankruptcy Laws, Bankruptcy Tips.