Experiencing bankruptcy brings both challenges and uncertainties

Facing bankruptcy can be a challenging and uncertain time. One of the most pressing questions is whether you can keep your home during and after bankruptcy. In this article, we will explore the factors that determine whether you can keep your home when filing for bankruptcy. We’ll also provide valuable insights based on legal principles and bankruptcy laws.

Understanding Bankruptcy Types:

Chapter 7 and Chapter 13. Here are two articles on the comparison between both chapters. and The difference between chapter 7 and chapter 13. Each of these links explains the key differences between Chapter 7 and Chapter 13 bankruptcy, including notes on how bankruptcy could impact keeping your home.

The Laws Governing Bankruptcy:

Even though bankruptcy is a federal law, the laws of the state you live in are still very important.  For instance, homestead exemptions are different in every state. Here is a link to Arizona exemptions Arizona Exemptions (29237 downloads)

Equity and liquidation:

The equity in your property controls the possibility of losing it in bankruptcy.  Equity is the difference between the current (real) value of your home minus any secured debts, such as your mortgage, HOA, HELOC, and any other liens (such as the IRS).  With the 2022 change in Arizona law, creditors can now record a judgment against your home. Here is an article about creditors taking your equity in your home.

Chapter 7 Bankruptcy and Your Home:

If your equity exceeds the allowed homestead amount, then your chapter 7 trustee may sell your home, pay the costs of sale, then pay the secured creditors (perhaps the judgments), plus pay you your homestead exemption. The excess is then divided among your creditors after the trustee (and perhaps their attorney) receives their fees. This is referred to as “liquidation.”

Chapter 13 Bankruptcy and Your Home:

In a Chapter 13 bankruptcy, you create a structured repayment plan, potentially helping you keep your home if the equity exceeds the homestead allowance. The amount of that monthly repayment, or “plan payment,” is determined by too many factors to explain here.  It takes an experienced Chapter 13 attorney to do even a guestimate of the monthly plan payment. It is important to provide your experienced Chapter 13 attorney with accurate information so they can do their job correctly.

Seek Legal Guidance:

It is very important to seek advice from a qualified bankruptcy attorney who can provide tailored guidance. Each person’s financial situation is different from every other person; therefore, customized advice is the foundation for a successful bankruptcy.  Do not fall for the Internet or TV advertising firms.  They have a huge advertising budget; therefore, they must push as many clients through their firm as possible and keep their overhead to a minimum.  This results in low-quality lawyering, or perhaps no lawyering at all (you only talk to a paralegal).

In Summary:

A experienced bankruptcy attorney is essential to help you navigate these complex laws and real-world concerns. Whether you can keep your home during and after bankruptcy depends on a number of factors, including the type of bankruptcy you file, your state’s homestead exemptions, and the equity in your property.