Bankruptcy is a legal process that can provide relief to individuals overwhelmed by debt. However, many people considering bankruptcy whether they will have to sacrifice their home to get this fresh financial start.
The good news is that in many cases, you can keep your home during bankruptcy. However, this depends on several factors, including the type of bankruptcy you file, the equity you have in your home and other details of your finances. What should you consider?
How does each type of bankruptcy address your home?
The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. Each type of filing affects your property differently.
The Chapter 7 bankruptcy process involves selling assets to pay off creditors. However, there are exemptions that protect certain types of assets, including some equity in your home. It is important to understand that if your equity exceeds the exemption, the trustee could sell your home to pay creditors in some situations.
Chapter 13 bankruptcy allows you to keep your assets while reorganizing your debts into a manageable repayment plan over three to five years. Chapter 13 can provide a way for homeowners who have fallen behind on their payments to catch up on mortgage payments over time. This can help them avoid foreclosure as long as they adhere to the terms of the repayment plan.
Could your home be exempt from the bankruptcy process?
One of the critical factors in determining whether you can keep your home is the homestead exemption. This exemption allows you to exempt a certain amount of equity in your primary residence.
In Mississippi, the law protects up to 75,000 dollars of home equity from the bankruptcy process. That means that the value of your home and how much of your mortgage you have paid off are important considerations in the bankruptcy process.
In many situations, it is possible for homeowners to keep their house during the bankruptcy process. By making informed financial decisions during bankruptcy, you can create a fresh start while staying in a familiar home.