Chapter 7 bankruptcy is commonly known as a liquidation bankruptcy. This is because the courts will liquidate the debtor’s assets to help pay off creditors.
The two most common bankruptcies to file for as an individual or either Chapter 13 or Chapter 7. Persons who file a Chapter 13 bankruptcy are less likely to lose their assets as compared to those who file Chapter 7. However, there are ways to ensure that you stay in your house even if you file a liquidation bankruptcy. According to Findlaw, whether you keep your home depends a lot on the equity you have in your property.
How does equity matter?
Equity is the difference between the market value of your home and how much you have left on your mortgage payment and in home equity loans. It is very common for individuals who file Chapter 7 to have negative equity in their property. If this is the case, then the bank will not seize and liquidate it during the Chapter 7 process.
If the amount of equity in your home is over the exemption limit, you may need to sell the property to complete the bankruptcy process. However, if this is the case, you may be able to purchase the home back again from the trustee.
What about my mortgage?
It is possible for you to retain ownership of your house through a Chapter 7 bankruptcy, but you must continue to pay your mortgage after the bankruptcy. In some situations it is actually more beneficial for the debtor to get rid of the house and the mortgage payment, as this is one of the few situations where a person can “walk away” from a property with few penalties.
A Family-Owned, Family-Focused Bankruptcy Firm