How to Keep Your Home When Filing for Bankruptcy

Have you already filed or are you considering filing for bankruptcy? Are you concerned about losing your home?

Maybe you’ve heard that bankruptcies require you to sell your home and you don’t want to give up that part of your life. Or, perhaps you’re struggling financially and don’t want to go through the hassle of finding a new place to rent. Perhaps you’re afraid that you won’t even qualify.


File for Chapter 13 bankruptcy – not Chapter 7

Nobody wants to lose their home in bankruptcy, but some people have an easy time detaching. Giving up your home can be especially hard when you’ve spent years fixing it up and building memories with your family. However, not all bankruptcies require selling your home.

If losing your home is an unbearable prospect, you’ll want to file for Chapter 13 bankruptcy. Keeping your home isn’t guaranteed, but Chapter 13 is the only bankruptcy option that might allow you to keep your home.


How does Chapter 13 bankruptcy allow people to keep their homes?

Unlike the total asset liquidation of Chapter 7 bankruptcy, Chapter 13 helps you restructure some debts and discharge others. During the Chapter 13 process, personal assets aren’t required to be sold.

The only reason you’d have to sell your home after filing a Chapter 13 bankruptcy is if that’s the only way you can pay your restructured debts. If you have no income, you’ll have no choice but to sell your personal assets, including your home. If you have no income, you’re better off filing Chapter 7.


You’ll get to keep your assets, but you’ll have to give up control

If you keep your home during a bankruptcy, there are rules regarding what you can (and can’t) do with your assets, including your home.

Once you file for Chapter 13 bankruptcy, any personal assets you haven’t already sold to pay your debts will be placed under someone else’s control. You’ll need your trustee’s permission to sell or refinance any of your assets, including your house.


Be smart with your assets

At any time during the bankruptcy process, you might need some extra cash. However, you can’t just list a bunch of things on eBay and call it a day. You’ll have to consult with your trustee before selling any of your assets.

If you can avoid selling anything during your bankruptcy, that would be ideal. However, if you must sell something to survive, start with smaller assets first. If you can get permission to sell smaller assets, you’re less likely to be required to hand over the profits to your creditors.

If you must sell smaller assets for survival money, start with smaller items like:


  • Comic books and trading cards
  • Collectible toys
  • Antiques that are worth something, but not thousands of dollars
  • Equipment you don’t use or need

Avoid selling the following types of assets for survival money during a bankruptcy:

  • Gold and silver bullion (you’ll have to buy it for more money later on)
  • Musical instruments
  • Vehicles, boats, RVs, campers, etc.
  • Farm equipment

If you sell a tractor for $20,000, you’ll probably be required to split the profits with your creditors. On the other hand, if you just need food money, get permission to sell some comic books for a few hundred bucks. If you need more money later, sell another small batch as needed.


Foreclosure might alter your plans to keep your home

You may go into a bankruptcy thinking you’ll keep your home, but if you fall behind on your mortgage payments, you might end up in foreclosure. Naturally, your first thought will probably be to sell your home and stop the foreclosure process. However, if you’re in a bankruptcy, you’ll need permission from your trustee to put your home on the market.


The downside to selling your home to avoid foreclosure is that all of the proceeds will go to your creditors. However, it’s also a plus because you won’t get much (or any) money from a foreclosure.


Most foreclosures result in a deficiency where the property sells for less than the remaining balance owed to the lender. Sometimes people profit from a foreclosure, but it’s nowhere near what you’ll get from a standard sale.

Getting market value for your home means your creditors will be paid off faster.


Discuss your case with a bankruptcy attorney before making any decisions

Although a bankruptcy can be complicated, it doesn’t have to become a major source of stress in your life. Talk with an attorney before filing. While there are no guarantees, an attorney will make sure you at least have the possibility of keeping your home.

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