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Can I keep a home in a Chapter 7 bankruptcy?

People often wonder in Kentucky whether they can file a Chapter 7 bankruptcy if they are a homeowner. The classic answer from a bankruptcy attorney will probably be, "It depends." In a Chapter 7, the trustee's job is to collect all of the non-exempt assets, sell them and pay the proceeds to your creditors. If your only assets are exempt property, then there are no assets for the trustee to sell.

If you have a home with a mortgage and the mortgage balance is greater than the current valuation of your home, the Chapter 7 trustee would have no interest in selling your home, as he or she would not recover any cash that could be distributed to your creditors. 

The difficult part for many borrowers who want to  keep their home is that they must have sufficient income to be able to afford their mortgage and keep the mortgage payments current. They also must be eligible for a Chapter 7 via the means tests, which based on income.

Many borrowers who can maintain their mortgage payments may earn too much to be eligible for a Chapter 7 and will have to file a Chapter 13. This may be the better option for most borrowers who are in financial trouble, as the Chapter 13 plan allows them to pay mortgage arrears over the length of the plan.

A Chapter 7 or Chapter 13 also requires that your mortgage payments be kept current. But, because you can discharge some or all of your unsecured debts, the reduction of those payments may enable you to be able to afford your mortgage payments in a Chapter 13.

Source: FoxBusiness.com, "How Safe is My Home in Chapter 7 Bankruptcy?" Justin Harelik, August 21, 2013

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