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Is my home protected during bankruptcy?

In order to find relief from overwhelming debt, you may choose to file for bankruptcy. When you do so, you are declaring that you are unable to pay your debt. Instead of creditors or collection agencies coming to you directly, a court order releases you from personal liability or helps you form a repayment plan.

There are two-types of personal bankruptcy: Chapter 7 and Chapter 13. While Chapter 7 is the most common form filed by individuals, Chapter 13 bankruptcy is typically for those who own more assets. 

In Kentucky, if you have filed Chapter 7 bankruptcy, there are certain statutes that can protect your personal assets, including your home. Even though a Chapter 7 case is often referred to a “liquidation,” there is a chance that losing your personal belongings will not be the resolution to the court reviewing your assets.

Generally, when trying to calculate if your house is exempt from a Chapter 7 bankruptcy, only the equity of the house is considered. This means that the trustee will take the market value of your house and subtract the balance remaining on your mortgage and/or home equity loans. It is often that case that Chapter 7 filers have little or negative equity on their homes, meaning that their houses do not exceed the exemption limit. If your home’s equity does not exceed this limit, it is possible that you will not lose your house during the bankruptcy.

If you have filed for Chapter 13 bankruptcy, it is less likely that you would lose your home. For those who file for Chapter 13, there is usually more flexibility when it comes to creating a repayment plan to help settle your debt.

After the bankruptcy process, if you were able to keep your home, it generally is assumed that you will be able to continue making mortgage payments. If you are unable to do so, it is possible that the bank could foreclose on your house. Bankruptcy filers who are in this particular situation should consider their options, as they might have the opportunity to give up their home, along with the mortgage payments, and possibly suffer no additional consequences.

Because of these uncertainties when filing bankruptcy, it may be beneficial to speak with an attorney to form the plan that would best suit you.

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