One question that many people face when considering filing for bankruptcy is whether they will be able to keep their home. Often, a home is the largest investment a person will make in their lifetime, and carries with it emotional, sentimental, as well as financial value. If a person filing for bankruptcy has a family, the thought of uprooting that family may cause much stress and anxiety.
Chapter 7 bankruptcy
is also known as a “liquidation bankruptcy;” the basic idea is that an insolvent debtor’s assets are liquidated and the proceeds from the liquidation are used to pay outstanding debts to creditors. At first glance, it may seem that a Chapter 7 bankruptcy would leave an unfortunate debtor with nothing left. Fortunately, the bankruptcy code is not so draconian. The good news for debtors is that state and federal law allow for bankruptcy exemptions, which exempt certain property from bankruptcy proceedings and make them beyond the reach of a creditor or a bankruptcy trustee. There are exemptions for vehicles, household goods, clothing and jewelry, a “wildcard” exemption, and others. This post will focus on the “homestead exemption” and how it helps most individuals keep their homes through bankruptcy.
First of all, if you are and can stay current on your mortgage you can likely keep your home in a Chapter 7 bankruptcy. If you fall behind on your mortgage payments, you will lose your home in foreclosure, which is completely outside of the bankruptcy process. Here is how to determine whether you can keep your home.
Missouri’s homestead exemption exempts $15,000 in equity you have in your home. This means that $15,000 is unreachable by creditors or the trustee in a bankruptcy proceeding. So, if you have less than $15,000 in equity in your home, you are not in danger of losing your home in a Chapter 7 bankruptcy. If you have more than $15,000, there is a simple calculation you can use to determine whether the bankruptcy trustee may liquidate your home when filing for Chapter 7. You take the fair market value of your home, and subtract:
• $15,000 (the exemption)
• The amount owed on all mortgages
• The amount owed on all liens secured by the home
• Cost of the sale, including the trustee’s commission
If this number is negative, then there is not enough equity in your home to trigger a sale; this is because if the trustee sold the home, he would first have to subtract the $15,000, and pay any debts secured by the home. So if the amount of your mortgage plus your equity is at or above the fair market value of your home, there is very little danger of losing your home.
If you falling behind on your financial obligations bankruptcy may be an option you want to consider. Whether bankruptcy is right for you depends on the specific circumstances of your case, and only an experienced bankruptcy attorney can determine what course of action is right for you. The attorneys at The Westbrook Law Group focus solely on bankruptcy law, and are committed to providing our clients with the best possible result in their case. To schedule a free consultation with an experienced St. Louis bankruptcy attorney, call The Westbrook Law Group today at (636) 493-9231. If you would prefer, please fill out our contact form available on the right, and a member of our staff will contact you shortly.