Declaring bankruptcy is a last resort for people in extreme financial difficulties, but in some cases, it’s the only way to get out from under a mountain of debt. One concern that many people have about filing for bankruptcy is whether they can keep their home. Let’s take a closer look at this important question.
Under Chapter 7 Bankruptcy Rules
The traditional form of bankruptcy is known as Chapter 7. When you declare bankruptcy under this section of the Bankruptcy Code, you are putting your assets at risk. The bankruptcy trustee will typically take your available assets to pay off your creditors unless the assets are exempt from forfeiture by state or federal law.
Equity and State Law
Whether you can keep your home after you file under Chapter 7 depends primarily on the exemption rules of your state of residence. One of the most important considerations is the amount of equity you have in your house. Homestead exemption rules allow you to protect a certain amount of equity. The exact amount you may protect depends on state statutes.
Kansas
For example, if you live in Kansas, then state law allows you to keep all of the equity in your home, as long as you have lived in the state for at least two years and purchased your home within the 40 months prior to your filing. If you do not meet these conditions, you will need to use the follow the exemption rules of either your prior state of residence or the federal government.
The maximum number of acres Kansas law allows you to protect with a homestead exemption depends on the location of your home. The rules allow you to protect one acre if you live in a city or incorporated municipality. People who live in rural areas, however, can use the exemption to protect up to 160 acres of farmland.
Missouri
Missouri homestead exemption limits are quite different from the limits in Kansas. The law allows Missouri homeowners to protect no more than $15,000 worth of equity in their homes. You have the option, however, of using the federal homestead exemption rules instead of the state rules. The federal exemption is currently about 10 thousand dollars higher than the state’s limit.
A key point to remember is that some states allow you to choose between the federal exemption limits and the state limit and some states do not. For example, in Kansas, you must use the state bankruptcy exemption rules in most circumstances, while Missouri allows you to select either the state standards or the federal standards.
Little or No Equity
Some Chapter 7 bankruptcy filers have little or no equity or even negative equity in their homes. In this case, the bankruptcy trustee has little incentive to take the house because there is virtually nothing the trustee can gain by selling it. Homeowners with only a little or no equity in their houses can often keep their homes, as long as they stay current on the mortgage.
Under Foreclosure Law
A key point to keep in mind is that bankruptcy and foreclosure are two separate legal processes. Even if you can keep your home under the bankruptcy rules, you can still lose it to foreclosure if you fall behind on your mortgage payments. So, it’s critical that you determine whether you can stay current with your payments before you attempt to save the house under Chapter 7 rules.
Whether you are able to keep your home after filing for a Chapter 7 bankruptcy is a complex question that requires the expertise of a qualified attorney to answer correctly. Let our experienced lawyers at Wiesner & Frackowiak, LC, help you with this vital legal issue. Contact us for more information.
The providing of the information in this blog does not create an attorney-client relationship. That will only happen through compliance with a signed written fee agreement with the attorney. The information is this blog is not a substitute for the legal advice of an attorney.