The Short Answer: Most Likely Not.
If you file bankruptcy, you are allowed to use “exemptions” or laws that protect property. For your home, you are allowed to take a “homestead exemption.” The homestead exemption allows an individual to protect $40,000 in equity in a house, or a married couple filing together to protect $50,000.
For example, if you have a house that is worth $175,000 and you have a mortgage that has a balance of $150,000, this leaves only $25,000 in equity (value of house minus what is owed: $175,000 – $150,000 = $25,000). If an individual’s equity in their home is only $25,000, this amount is completely protected by the homestead exemption (which is $40,000). Now, to be able to use the homestead exemption, the individual must reside at the home, or the individual’s child or parent must reside at the home.
But what if there is more equity than the homestead exemption can protect?
If this is the case, we usually consider filing a chapter 13 bankruptcy, where we will be able, in many cases, to protect the house; a chapter 13 bankruptcy, however, will last between 36-60 months, and require monthly payments.
If you have questions about your house and the impact of bankruptcy, please feel free to contact our office to set up an appointment to discuss.