How Can I File for Bankruptcy & Keep My Home?

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Explore effective strategies to file for bankruptcy while keeping your home. Chang & Diamond, APC guides you through legal avenues and exemptions to protect your most valuable asset.

What Happens to Your Home After Filing for Bankruptcy?

Filing for bankruptcy is always long and draining, especially if your house is on the line. Therefore, it is normal if you have questions concerning what will happen to them after a bankruptcy filing. 

One of the most worrying concerns is having to sell your house. However, you should note that filing for bankruptcy is not a matter of taking everything but more of offering you a redeeming chance. 

To get a clearer picture, what happens to your home depends on several factors, including the type of bankruptcy you file for, your stand-alone home value, and the condition of your mortgage payments. This article highlights the ins and outs of property ownership concerning bankruptcy filing and your legal options. 

Our bankruptcy attorneys at Chang & Diamond, APC, have years of experience and a proven track record. We promise our clients to do everything allowed by law to help them keep their property.

Understanding Bankruptcy and Home Ownership

Bankruptcy refers to an individual becoming insolvent due to several factors, including income loss, excessive debt, unavoidable bills like huge medical expenses, etc. While there is a possibility of losing your home after filing for bankruptcy, this isn’t always the case. Here is a brief explanation of how filing bankruptcy can affect homeownership.

Chapter 7 and Its Implications for Homeowners

Chapter 7 bankruptcy allows the liquidation of an individual’s non-exempt assets to settle creditors’ debts. By non-exempt, we mean property that the bankruptcy law allows debtors to keep up to a certain limit.

Equity, the difference between the house value and outstanding mortgages, in primary residences is protected by the homestead exemption up to a certain limit. If your home equity exceeds the limit, the case trustee will sell your home and reimburse you an amount equal to your exempt equity. At the end of the process, that is, once all non-exempt property is sold and creditors paid, the remaining unsecured debt will be discharged by the court.

The impact of Chapter 7 bankruptcy on home ownership varies depending on your home equity and whether it is within the exemption limit. More on this below.

Chapter 13 and Its Implications on Homeowners

Chapter 13 bankruptcy helps individuals create a repayment plan to pay off secured and unsecured creditors within 3 to 5 years. The Chapter 13 bankruptcy filing also prevents foreclosure, giving you time to catch up on missed payments, including mortgage arrears. Your property will not be sold off in Chapter 13 bankruptcy.

The equity and homestead exemptions apply in this bankruptcy type, similar to Chapter 7 bankruptcy. However, if your home equity is higher than the homestead exemption limit, you will need to pay the creditor an equal amount to the excess equity in your plan.

Legal Strategies to Protect Your Home in Bankruptcy

During bankruptcy filing, some ways to protect your home is through homestead exemption and mortgage reaffirmation agreements. Here is a breakdown of what they are and how they work.

Homestead Exemption

In California, homeowners undergoing Chapter 7 bankruptcy can leverage the state’s homestead exemption to safeguard their primary residence. The California homestead exemption is currently set at a minimum of $300,000. If the median sales price of homes in the county where you reside in the prior year to filing exceeds $300,000, the exemption matches that median price, provided it doesn’t exceed $600,000.

Therefore, homestead exemption shields the homeowner’s equity up to the applicable limit. For instance, if your home is worth $230,000 and the mortgage balance is $75,000, resulting in $155,000 in equity, the entire equity amount is protected by the homestead exemption. In this case, the bankruptcy trustee cannot liquidate your home to pay the creditors. However, if your home’s value surpasses $300,000, the trustee could sell it to recover the excess equity, but you will be able to recover up to $300,000 from the net sale proceeds.

You don’t need to file any paperwork to benefit from this exemption. Your home equity is automatically exempted if it is eligible.

Reaffirmation Agreements: Keeping Your Mortgage out of Bankruptcy

Homeowners can opt for reaffirmation agreements, which allow them to continue making monthly payments and retain ownership of their homes even after filing for bankruptcy. Through a reaffirmation agreement, you agree to continue repaying the mortgage lender, effectively excluding the mortgage debt from the bankruptcy estate.

The choice for a reaffirmation agreement is voluntary despite the need for bankruptcy court approval. Before you apply for a reaffirmation agreement, you need to undergo financial counseling to understand the consequences of this choice.

Legal advice during this process is crucial as it can help you cancel within the limited allowance if it isn’t the best decision or proceed if it is. That said, if you need to file bankruptcy in California under any chapter, contact a Chang & Diamond debt relief attorney for credible representation.

How Chang & Diamond, APC, Can Help

Legal guidance during a bankruptcy case will help you know the type of bankruptcy you are eligible for, the filing process, the consequences, and how best to navigate your case. Additionally, an attorney can help you make the right decisions to keep your house and any other exempt properties through the available bankruptcy exemptions.

Chang & Diamond, APC, can help you keep your home while filing for bankruptcy through:

  • Continued legal guidance throughout the bankruptcy process
  • Representation in bankruptcy court
  • Negotiating with creditors
  • Assessing your home value and exempt equity
  • Filing of exemption claims, if necessary, and reaffirmation agreements.

Reach Out to a Chang & Diamond, APC, Bankruptcy Lawyer

While most believe filing for bankruptcy means losing your home, the law begs to differ. Many factors determine whether you can keep your home and other properties. Moreover, the automatic stay of bankruptcy can immediately halt any foreclosure or collection actions against you, giving you breathing room to prepare your bankruptcy case and negotiate favorable terms with creditors.

Having an experienced bankruptcy attorney by your side is crucial during the entire process for legal representation, advice, and planning. Since they are more familiar with state and federal bankruptcy laws, they will find the most suitable ways to manage your case.

Contact Chang & Diamond, APC, today for a free consultation with our best bankruptcy and debt relief attorneys to handle the unique needs of your case. You can trust us to do everything possible to protect your home.

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