If you are filing for a Chapter 13 rehabilitation bankruptcy, you can normally keep your home as long as you keep up with the Chapter 13 payment plan. In terms of your mortgage, the Chapter 13 works similar to a loan modification. But what if you file for a Chapter 7?
One of the most common questions that I hear regarding a Chapter 7 (liquidation) bankruptcy is: “Will I lose my home?” Chapter 7 debtors can often keep their home throughout and after a bankruptcy, and a good bankruptcy attorney will be able to tell you if your home would be in jeopardy before you file.
If your mortgage is underwater and you have no equity in your home, you likely have the ability to keep your home. Without any equity in the home, the bankruptcy trustee will have no incentive to sell your home in the bankruptcy. Selling an underwater home would result in a “loss” which would not help any of their creditors.
If you have equity in your home, then your home will be safe if the equity is not substantially more the exemptions attributable to your home. Even if the equity in your home is substantially more than your exemptions, you may still keep your home through a Chapter 7 bankruptcy with a reaffirmation plan agreement between you and your mortgage company. If keeping your home is a priority, there are many options that your bankruptcy attorney will discuss with you to help you achieve that objective.
During the Bankruptcy, you will have a choice: keep the home or let it go. If you choose to keep the home, then you will want to discuss mortgage modifications and refinancing with your bankruptcy attorney. You may be able to get rid of some of your principal balance in the bankruptcy process. Ask your bankruptcy attorney about a Chapter 7 with HAMP, a powerful tool that could help you keep your home, discharge other debts, and lower your monthly mortgage payments.
The question that you must consider is whether or not keeping the home would be a good idea. If you cannot afford the monthly payments, you should relinquish your home in the bankruptcy and find a more affordable living arrangement. In some cases, even a Chapter 7 with HAMP (or other modifications) will not result in affordable mortgage payments. In either case, your bankruptcy attorney should be able to discuss options with you that will allow you to rebuild from a fresh start.