Saving Your Home in Bankruptcy
In many situations, declaring bankruptcy is the best way to relieve the burden of overwhelming debt. As you go through the process, you are allowed to keep many of your belongings. In in order to do so, it is necessary to declare that certain assets are exempt. Homestead exemptions allow you to keep your house under certain circumstances. Of course, the limits of your exemptions can vary from state to state. The bankruptcy laws in California are different from the laws in any other given state. There are several steps that you must take in order to find out whether your home qualifies for an exemption during bankruptcy.
- Establish home value
- Calculate total equity
- Fill out Homestead Exemption documentation
- Continue to pay mortgage
Basic Requirements
When you are filing for homestead exemptions, it is important that the home fulfills certain basic requirements. For example, the home must be your primary residence. Homes that are being used as rental properties do not qualify for exemptions during a bankruptcy case. In some situations, declaring bankruptcy can actually help you avoid a foreclosure and allow you to keep your home.
In order to receive a homestead exemption, you cannot have more equity in your home than the state defined limit. Otherwise, you may be forced to sell your home in order to pay off other debts.
Chapter 7 vs Chapter 13
There are differences between the way homes are treated in chapter 7 and in chapter 13 bankruptcies. In a chapter 7 bankruptcy, unsecured debt is discharged. If your home qualifies for an exemption, it is considered to be secured debt. Presumably, people can keep paying their mortgage payments if they are relieved of other financial responsibilities.
In a chapter 13 bankruptcy, the court can agree to a monthly payment plan based on income. This money is paid to the chapter 13 trustee, who will use the money to pay off debt, beginning with secured debt, such as a mortgage, and then progressing to unsecured debt, which may be paid at less than the full rate. If you keep up your payments over the duration of the chapter 13 plan, you can repair your credit and keep your home.
Limitations
Right now, poor economic circumstances have a big impact on the overall housing market. As a result, many people owe more on their home than it is worth. It is important to remember that in a bankruptcy case, the court cannot reduce the rate of the mortgage simply because the home is worth less than is owed. If you are going through a bankruptcy and are interested in finding out whether you qualify for a homestead exemption, California Bankruptcy Relief can help when you call 888-748-0025.
