Almost daily I meet with families that have avoided filing for bankruptcy because they fear they will lose their home as part of the process. In this article I will discuss how you can know if your house will be put at risk by filing bankruptcy and discuss the different ways secured and unsecured debts are treating in the bankruptcy process.
Will I Lose My House?
Secured debts are treated different in bankruptcy than an unsecured debt. A secured debt is a debt that is secured by property or collateral of some sort. The most common secured debts are car loans and home loans. With these types of loans if you don’t make the payment the care will be repossessed or the home foreclosed on.
For the most part it is no different if you file a chapter 7 bankruptcy. You must keep making the monthly payment on your home if you want to keep it while you are going through the bankruptcy process. If you don’t make the house payment then, just like it would be if you weren’t in bankruptcy, the bank can ask the bankruptcy court to permit it to start the foreclosure process.
What if I have Equity in My House?
Over the last 4-6 years it almost seemed laughable that someone would have equity in their home here in Arizona. Due to the Great Recession nearly all Arizona homes were upside down where there was more owed on the home than it was worth.
As the housing market has improved I am starting to see families that do have equity in their homes, and sometimes quite a bit of equity. In Arizona you are permitted to have up to $150,000 in equity in your home that creditors cannot touch. This is true if you are going through bankruptcy as well.
So long as you continue to make the monthly house payment and don’t have more than $150,000 in equity you are fine and you will not lose your home simply because you filed for bankruptcy.
What If I am Behind on My House Payment?
If you are behind on your house payments or if your house is in foreclosure then chapter 7 may not be the best chapter of bankruptcy to file and keep your house. You would likely want to file a chapter 13 case which is better suited to helping consumers get caught up on their missing house payments and begin making the regular payment going forward.
So, if you are dealing with large amounts of credit card debt or medical bills and you need some relief bankruptcy can be a good option to eliminate the unsecured-type debts, keep your home, and get your fresh start.
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John Skiba, Esq.
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