Whether you can keep your home depends, in part, on which “chapter” you choose to file. You have control over whether you keep your home in bankruptcy. You just need to file the type of bankruptcy that allows you to keep your home. The two most commonly used types of bankruptcy are Chapter 7 and Chapter 13. Chapter 13 is a debt re-payment plan based on your ability to pay. A chapter 7 simply wipes out unsecured debt and has no associated payment plan.
A trustee is appointed to your case whether you choose a Chapter 7 or a Chapter 13. In a Chapter 7, the trustee is in charge of evaluating your assets and selling those that the law allows him to sell. If he sells anything, the proceeds are used to pay your creditors. The majority of Chapter 7 cases do not involve the sale of assets because state law allows the filer to keep all of their assets.
The most prominent reason to choose a Chapter 13 over a Chapter 7 is because you have assets that cannot be protected in a Chapter 7. The potential loss of assets in a Chapter 7 is often the principal factor that leads people to choose to file Chapter 13 over a Chapter 7. Individuals whose assets are fully protected from sale by the Chapter 7 trustee, often choose to file a Chapter 7 rather than a Chapter 13 because the Chapter 13 trustee does not take assets to pay creditors, but the Chapter 7 trustee does. On the other hand, people who cannot fully protect assets, often Choose Chapter 13 so they can keep assets such as their home. The Chapter 13 trustee pays your creditors from the payments you agree to pay in your Chapter 13 plan rather than from the sale of your assets.
In California, the Chapter 7 trustee can sell your home if you have more equity than state law says you need to make a fresh start financially. As of this writing, the amount of equity you can protect is as follows:
- An unmarried homeowner without dependents can protect $75,000 in home equity.
- A married homeowner or a homeowner with minor-aged dependents can protect $100,000 in home equity.
- A person over the age of 65 or a disabled person can protect up to $175,000 in home equity.
Here’s how the home equity calculation works:
- find the current market value of your home. (You can get a fairly good idea of your home’s value by going to Zillow.com and typing in your address.)
- subtract the cost of sale from the value of your home. Most trustees use 8% of the market value to estimate this cost.
- subtract the balance of all the loans that are secured by your home from the result of the calculation in “b” above.
The remainder shown from the calculation in “c” above, is the amount of equity you have. Compare the amount of equity you can protect listed in numbers 1, 2, and 3 above to the amount of equity you have. If your home equity exceeds the amount you can protect, the Chapter 7 trustee may sell your home to pay some or all of your creditors. If your equity is less than the amount in 1, 2, or 3 above, the Chapter 7 trustee will ignore your home.
If you have questions about whether you can keep your home or other assets in bankruptcy, consult an experienced bankruptcy attorney. Find out what you can keep before you file. With guidance from an experienced professional, you will be able to file the bankruptcy that best fits your needs.
