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Does filing for bankruptcy mean losing your home?

As the old adage goes, "home is where the heart is," which is why debtors in Tennessee who decide that filing for bankruptcy is the best way to overcome their financial challenges may be afraid they will lose their home in the process. However, it is possible in some circumstances to keep your home after filing for bankruptcy.

Let's start with Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, a debtor's assets are liquidated to pay off at least some of the debtor's liabilities. However, there are some exemptions to what property may be liquidated in a Chapter 7 bankruptcy. One exemption is for the debtor's home, contingent however, on the value of the home. While the amount of the exemption varies by state, in general, a home with equity that is below the legal exemption amount is protect from seizure.

For example, say the exemption amount for a home is $20,000. A debtor with $10,000 in equity in his or her home will not lose the home. However, if the exemption is $20,000 and the debtor has $25,000 in equity in his or her home, the home may be liquidated.

Now, let's look at Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, the debtor's assets are not liquidated. Instead, the debtor enters into a three to five-year payment plan to pay off their debts. In a Chapter 13 bankruptcy, so long as the debtor doesn't miss a payment, he or she can keep a home.

As you can see, whether or not you can keep your home after bankruptcy is dependent, in part, on what form of bankruptcy you pursue. However, filing for bankruptcy can be complicated, and one wrong move could leave you ineligible for bankruptcy altogether. Therefore, it is important to have legal help throughout the bankruptcy process. People in the Chattanooga area who want to try to keep their home while getting on sounder financial footing should research their legal options.

Source: The Washington Post, "What happens to your house when you file for bankruptcy," Jonnelle Marte, July 26, 2016

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Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

Phone: 423-954-7180
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