Using The Law To Make Your Life Better

Does Chapter 7 bankruptcy save a home from foreclosure?

David Sexton

Could Chapter 7 bankruptcy allow you to keep your house? The answer is probably yes. Most people eligible to file for liquidation are in a financial situation that lets them maintain ownership of their home.

In general, you may find yourself in three situations when approaching Chapter 7. The first is that you would own your house outright. In the other two situations, you would have a mortgage with either excessive or manageable payments. Learn more examples of how you may deal with each scenario.

High home equity

If you own your home outright, it may be at risk. Large assets you hold personally would generally not be exempt from liquidation under Chapter 7 bankruptcy. When you file, the court may decide your lenders are entitled to some of the equity you hold in your house. Chapter 13 may be a better option, in this case.

Please note: You probably do not have to worry if you only have a portion of a smaller mortgage paid off. If this is the case, you may qualify for the exemption.

Low equity with excessive payments

If your home is exempt, you may still face some trouble if you could not afford your mortgage payments. This could lead to a problematic foreclosure before you were eligible for a second bankruptcy filing. Restructuring your debt or downsizing may be the best strategy, giving you the chance for a new start.

Low equity with manageable payments

If neither of the examples above applies to you, then you fall into the majority of people who intend to file for Chapter 7. You could probably keep your house if you have low equity and low payments. In fact, getting rid of your other debts is likely to free you up to remain current on your mortgage. 

This final option is as close to an ideal situation as you could get from bankruptcy, as it allows you to contribute to equity while rebuilding your credit. While the other two are not perfect scenarios, you may still maintain your way of life with the proper strategy.

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