Although it's a difficult decision, sometimes filing bankruptcy is the best option if you find yourself drowning in debt. This is especially true if the reason for your bankruptcy is because of medical issues or a major loss of income. Your goal is to get through the proceedings with as little stress as possible, so it's likely you may want to keep your home if possible. The following information can help you decide the best options for filing and staying in the home you love.
Choose the Right Chapter
Although it's possible to keep your home with both Chapter 7 and Chapter 13 bankruptcy, it's typically easier with Chapter 13.
Chapter 13 allows you to keep your home even if it has equity that isn't exempt from the bankruptcy or if you are behind on your mortgage. Chapter 7 is only a good option for keeping your home if you aren't behind on your mortgage and there is no equity.
What Is Non-exempt Equity?
It's important to understand what non-exempt equity is, since it's plays a major part in your bankruptcy decision. If you have equity in your home, a certain portion of it is exempt when it comes to figuring your liquid assets during bankruptcy. This amount depends on the state you live in. Anything remaining is non-exempt, which means your creditors can demand that you sell your home to pay your debts if you file Chapter 7 bankruptcy.
Chapter 13 and Non-Exempt Equity
So how does Chapter 13 differ when it comes to your home's equity? Unlike Chapter 7, you will be required to repay some of your debts under Chapter 13 bankruptcy. This means that your creditors cannot seize and sell your assets. Instead, you will be assigned a repayment plan by the court. When figuring out your total repayment amount, the court will include the amount of non-exempt equity in your home in your final figure.
Chapter 13 Qualifications
Not everyone qualifies for Chapter 13 bankruptcy. In Chapter 13, a portion of your debts are forgiven while another portion require repayment. The court sets up a repayment plan that is designed to be affordable. You must have a regular source of income so that you can handle these payments.
There is also an upper limit on the amount of your debts. The law dictates that you can't qualify for a Chapter 13 bankruptcy if your secured and non-secured debts are above the following limits:
- Secured debt: $1,149,525
- Unsecured debt: $383,175.
Meeting with a bankruptcy attorney, such as John G Rhyne Attorney At Law, is the best way to make sure you meet all the qualifications. They can help you decide which type of bankruptcy is best for you if you are hoping to keep your home.