Yes, you can file for bankruptcy if you own a home. You can even file if you co-own a house or hold the home in trust for someone else. But in each scenario, you'll run a higher risk of losing the property in bankruptcy if you don't live in the house.
Learn more about the things that can impact your ability to keep a house in Chapter 7 or 13 bankruptcy, including:
Here's the good news. If you live in the home, you can skip the first section altogether. However, if you suspect your home won't be safe in bankruptcy after learning more about this topic, speak with a bankruptcy lawyer. It might not be the right time for bankruptcy.
The last thing anyone wants to do is accidentally lose a house in bankruptcy, especially if it's someone else's home. You'll want to be cautious if you:
Because primary residences get far more protection than other real estate types in bankruptcy, protecting homes in these situations is often more difficult. Keep reading to learn more about why living in the house is a critical detail.
You won't lose your house in Chapter 7 or 13 if you meet property exemption requirements. Find out where you stand by answering these questions.
If you can prove that you're holding the home in trust for someone else, you won't declare it as a property you own. Instead, you'll include it in the "holding property for someone else" section of the bankruptcy paperwork, along with other assets in your possession you don't own, such as a borrowed car or lawnmower.
You can skip the rest of the analysis unless you're concerned that the bankruptcy trustee won't believe it's not your property. In that case, you might want to declare it as yours or avoid bankruptcy altogether.
Your state's bankruptcy exemption laws list the amount of home equity you can keep. A homestead exemption protects property equity explicitly, but only if the filer lives in the house. This rule can create a problem for people who don't live in the home because a homestead exemption will protect far more equity than the other option, a wildcard exemption. Also, some states don't extend the wildcard exemption to real estate, and others don't have a wildcard exemption at all.
You'll find your state exemptions here. If you live in a state that allows you to choose the federal bankruptcy exemptions, pick the system that will cover the most assets overall.
If a bankruptcy exemption covers the home's equity, you can keep the house in Chapter 7 (assuming you meet other requirements). In Chapter 13, you won't lose the property if you pay for noncovered or "nonexempt" equity in a Chapter 13 payment plan.
In Chapter 7, your mortgage must be current when you file. Otherwise, the lender will use its lien rights to foreclose on your home once the court lifts the automatic stay that stops collection actions.
If you're behind, consider filing for Chapter 13 and spreading the arrearages over the three- or five-year Chapter 13 plan. You might even be able to reduce the principal balance owed through a Chapter 13 cramdown or lien strip.
Although we covered this already, it's worth repeating. In almost every state, you can use the homestead exemption only if the home is your residence.
If you don't reside in the house, you won't be able to protect much equity, if any. You could lose the house in Chapter 7 or have to pay for the equity in a Chapter 13 plan.
If the property equity is nonexempt or partially exempt, here's what will happen:
When dealing with an unusual property issue in bankruptcy, like having an ownership interest in someone else's home, the stakes can be high. But trying to avoid the problem by transferring the house out of your name using a quitclaim deed or conveniently forgetting to list it aren't viable options.
You don't want to be involved in an unexpected investigation. So instead, avoid problems by doing two things:
Remember, the FBI investigates bankruptcy fraud, and being forthright in all aspects of bankruptcy will keep you out of trouble.
Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.
Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.
More Bankruptcy Information |
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Bankruptcy Forms and Document Checklist |
Schedule C: The Property You Claim as Exempt Schedule D: Creditors Who Have Claims Secured by Property Statement of Intention for Individuals Filing Under Chapter 7 |
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.