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Can You File Chapter 13 Bankruptcy and Keep Your House?
There is a generalized misconception about the effect bankruptcy has over a debtor’s property. Many people believe filing for bankruptcy means they will automatically lose their home. However, with bankruptcy that is not necessarily the case. In the state of California, bankruptcy law allows debtors to keep exempted property. Exemptions exist to protect certain property from being lost due to bankruptcy. However, keeping your property will depend on your particular circumstances and the bankruptcy chapter you are filing.
Facing a difficult financial situation can be overwhelming and stressful. However, debtors should be aware there is a solution to debt problems. One of the ways debtors can deal with debt is filing Chapter 13 bankruptcy. Chapter 13 is also known as a “wage earner’s plan.” Through Chapter 13, individuals have a chance to repay their debt by creating a repayment plan. Generally, it takes the debtor three to five years to complete the plan.
If the debtor remains current on his or her mortgage by sticking strictly to the terms of the repayment plan, which also allows time to get current on overdue mortgage payments (“mortgage arrears”), he or she may have an opportunity to prevent foreclosure and keep the property. While the ability to prevent foreclosure is obviously a tremendous advantage of personal bankruptcy, it is critical to consult with a Chapter 13 bankruptcy attorney before deciding to file. Your attorney can help you determine the best time to file, the right chapter to file, which forms you will need, and other important details about your case.
Do You Lose Your Home if You File for Chapter 7 Bankruptcy?
Chapter 7 is also known as straight bankruptcy or liquidation bankruptcy. During this process, the court will assign a trustee who will oversee the bankruptcy. The trustee may sell non-exempt property to pay your creditors. However, bankruptcy exemptions may be sufficient to protect your home. Our Roseville Chapter 7 lawyers have years of experience handling these types of cases, and know how to help you keep as much of your property as possible.
Unlike some states which allow debtors to use federal bankruptcy exemptions, California only allows debtors to use California exemptions. However, there are two systems of bankruptcy exemptions that debtors in California may choose between.
Under the first system (System I), certain homeowners can exempt up to $75,000 of their home equity, provided they are single and are not disabled. If the debtor lives with a family member, he or she could exempt up to $100,000. Additionally, if the debtor is 65 or older, or is physically or mentally disabled, he or she could exempt up to $175,000.
Under the second system (System II), the homestead exemption covers property the debtor uses as a residence. Using System II, debtors may exempt up to $26,800 of equity in their home. Under California’s bankruptcy laws, debtors must choose which exemption system they want to go with. This means you need to either select System I or System II – not a combination of both. Therefore, it is essential to evaluate your situation with help from a Chapter 7 bankruptcy lawyer and decide which method is better for you.
While bankruptcy exemptions in Chapter 7 may prevent sale of the property by the trustee, Chapter 7 does not share Chapter 13 bankruptcy’s reorganization plan. Therefore, Chapter 7 does not provide the means to protect your home from foreclosure. Chapter 7 cannot help you pay any mortgage arrears you may have.
If you owe past-due mortgage payments, you should try to negotiate with your lenders with help from an attorney. If you have enough disposable income to get current on the payments you owe, you may want to consider filing for Chapter 13 bankruptcy. Under this chapter, you will be able to create a repayment plan, and through it, potentially save your home.
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