Last updated Feb. 26, 2018.
Your home is one of your largest assets. Your mortgage is probably the largest loan you’ll ever take out. If you’re struggling to pay your bills, it’s also probably your biggest worry. Bankruptcy might be your best option, but what happens to your home when you file?
Keeping Your House in a Chapter 7 Bankruptcy
Chapter 7 is a “liquidation” process. You’ll qualify for Chapter 7 bankruptcy if you meet certain requirements, known as the means test. Intended to allow only people who really need it to file for Chapter 7, the means test includes a median income comparison, a measure of disposable income and how that compares to your unsecured debt, and the totality of the circumstances surrounding your case.
When filing for Chapter 7 bankruptcy, all of your assets temporarily become a part of your bankruptcy estate. Your bankruptcy trustee will then sell those assets and distribute the proceeds to your creditors. If you file under Chapter 7, the fate of your home will depend on the amount of equity you have in your home — the difference between the value of your home and the amount you still owe on it.
In Ohio, if you have less than $136,925 of equity in your home (or twice that for married couples filing jointly), it’s exempt and can’t be touched by the trustee. If you have more than that in equity, the bankruptcy trustee may try to sell your home, pay you $136,925 and distribute the rest to creditors.
For more information, see this post on the Ohio Homestead Exemption.
Keeping Your House in a Chapter 13 Bankruptcy
Under Chapter 13 bankruptcy, you’ll work with creditors and your bankruptcy attorney to create a three- to five-year repayment plan. Your plan will need to include full payment to your secured creditors (or allow for continued payments after the end of the three- to five-year term) and as much of a payment as possible for your unsecured creditors.
The Chapter 13 payment is based on your levels of disposable income. Under Chapter 13, as long as your mortgage is included in the plan and you keep making payments, you’ll be able to keep your home.
Chapter 13 bankruptcy can also help prevent foreclosure by allowing debtors to pay back mortgage arrearages in manageable increments. Keep in mind that Chapter 13 bankruptcy is binding once approved.
Bottomline: Bankruptcy Doesn’t Give You a Free House
If your home is exempt through the bankruptcy proceeding, that doesn’t mean you simply keep it. You will still need to pay the mortgage as usual. A Chapter 7 bankruptcy will discharge your personal liability under the mortgage, but will not extinguish the bank’s claim on your property. In other words, the bank won’t be able to sue you for collection but will still be able to repossess and sell it if you don’t make payments.
In Chapter 13, you’ll work through a three- to five-year repayment plan to pay back your debts. If your house is already in foreclosure, the automatic stay will stop any collection proceedings (including foreclosure) to give you more time to figure out your next steps.
Contact a Bankruptcy Attorney in Dayton, Ohio
If you’re thinking of filing bankruptcy, you don’t have to do it alone. In fact, you shouldn’t. Bankruptcy cases are typically much more successful when you hire a good bankruptcy lawyer to gather documents, review exemptions, and make sure your bankruptcy estate is completely and honestly presented to the bankruptcy court.
Contact the experienced Dayton, Ohio bankruptcy attorneys at Cope Law, LLC today for a free consultation.
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