The biggest concern that people who own or are buying their home have when they come in to see me for a consultation is whether or not they’ll be able to keep their home. The good news is that bankruptcy offers options that typically allow someone to keep their home, either in Chapter 13 or Chapter 7. When someone asks me if they can file bankruptcy and keep their home, I usually ask them why they are asking. I need to know if they have fallen behind on their mortgage payments. Being current or behind behind with payments can make a big difference in whether or not someone files Chapter 7 or Chapter 13 bankruptcy.
As long as someone qualifies for Chapter 7 bankruptcy (meaning their household income is within the Chapter 7 limits) and is current on their mortgage payments, he or she can probably file Chapter 7 bankruptcy. One other question I’ll ask is how much equity there is in the home. If there is excessive equity (meaning that the home’s value is more than what is owed), then Chapter 13 bankruptcy or not filing bankruptcy at all may be the better options.
If someone has fallen significantly behind on their mortgage payments (more than three months), Chapter 13 bankruptcy is probably a better option than Chapter 7. Chapter 13 allows someone to get caught up on their mortgage over the course of three to five years. Chapter 7 doesn’t have that mechanism.
The bottom line is that wanting to keep your home doesn’t mean you have to file Chapter 13 bankruptcy. If you’re current on your mortgage and have less than $60,000 in equity ($90,000 if you or a family member is disabled or over 60) and are within the Chapter 7 income limits, Chapter 7 is probably a viable option. Being able to file Chapter 7 means that you’ll be through the bankruptcy process much sooner (four months versus three to five years) and won’t have to repay any of your unsecured creditors.
Of course there are several other factors that can determine whether someone should file one chapter of bankruptcy as opposed to another. Owning a home is just one of them. The best way to decide is by talking with someone who has extensive experience helping people through the bankruptcy process.
If you have questions about how bankruptcy can help you keep your home, we hope you’ll come in for a free, no-obligation consultation with an experienced Colorado bankruptcy lawyer. You can schedule an appointment by calling 303.331.3403 or by using our online scheduling system.