If you struggle to pay off excessive debts, you may have considered filing for bankruptcy. With creditors calling you day and night, you may have reached the point where you want help to start fresh. But you may also worry that bankruptcy will take away your family home.
Depending on the type of bankruptcy you file, you may not have to sell your house. Chapter 7 and Chapter 13 filings both offer you ways to keep your home.
Federal exemptions let you keep a limited amount of equity
When you file a Chapter 7 bankruptcy, the court allows you to keep a certain amount of property. While Pennsylvania rules don’t keep homesteads exempt, you can apply for federal exemptions. For a house, you can keep up to $25,150 of equity. If you have a spouse that files with you, you can double that exemption.
With all exemptions, you only have to worry about the equity you own. If your house is worth more than the limit, you can subtract the amount you still owe on your mortgage from the total value of the home. This calculation leaves you with the amount you can keep exempt.
The federal homestead exemption prevents the court from requiring you to sell your home in a Chapter 7 bankruptcy.
A Chapter 13 payment plan can include the mortgage
If you have a steady income and don’t qualify for a Chapter 7, you can file for a Chapter 13 bankruptcy. Instead of the court discharging your debt and liquidating your property, you create a manageable three-to-five-year payment plan. If you add your mortgage payment into the plan, you and your family can continue to live in your home.
Bankruptcy can give a fresh start
Having unmanageable debt can be stressful. But if you can’t make the payments to keep your house, you can lose it to your lender.
Filing for bankruptcy can reset your finances while letting you keep your home. If you take steps to continue paying your mortgage, you can ensure your debt doesn’t uproot your family.