Bankruptcy is a federal procedure to remove or reduce most of your debts. Whether you get to retain your house in bankruptcy is dependent upon a number of factors, including how much equity is in your house, if you’re current on your payments and what the existing California homestead exemptions are for insolvency. The chapter of bankruptcy you record may also play a part in what happens to your property.
Type of Bankruptcy
The two chief types of customer bankruptcy are Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is also known as a”liquidation” bankruptcy because almost all of your assets are liable to be remanded to the bankruptcy trustee on behalf of your creditors. A Chapter 13 bankruptcy is much more akin to a payment plan you workout with the bankruptcy court to pay back your debts over a three- to five-year period. If you’ve got a house of any substantial price and you file Chapter 7, then you’re liable to lose the home to the bankruptcy procedure. If you can afford a payment strategy as structured at a Chapter 13 bankruptcy, you will probably be able to maintain your property.
If you would like to maintain your house when you file bankruptcy, you have to file a reaffirmation agreement with the court. A reaffirmation agreement says that you consent to your current mortgage’s liability regardless. In other words, you merely keep making the payments on your home as though you had never filed for bankruptcy and also hold on to your property. A reaffirmation agreement is effective only if you’re current on your mortgage. You can not claim your mortgage debt after registering for a reaffirmation.
Equity in Home
If you have limited equity in your house, you may still file a Chapter 7, along with a reaffirmation agreement, and possibly keep your property. California allows you to exempt up to $75,000 of equity within your home if you’re single or $100,000 if you’re married, even at a Chapter 7 bankruptcy. If you’re submerged in your mortgage or have restricted equity, you might be able to exempt that equity at a Chapter 7 proceeding and reaffirm your mortgage.
The state where you file bankruptcy may play a huge part in the way your home is handled. While bankruptcy is a federal process, each state decides its own exemption amounts, and some countries are more generous than others. By way of example, while California’s homestead exemption runs up to $100,000 as of 2010, some countries may allow you to maintain a house of any value at a bankruptcy proceeding.
Especially if you’re submerged in your mortgage, then you may simply file Chapter 7 bankruptcy, stop making payments and walk away from the mortgage. That is true in most countries, including California. Assuming you qualify for bankruptcy, you will lose your home in this situation, however you’ll also no longer be responsible for the mortgage debt.