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Can I file a bankruptcy and still keep my house?
Posted on Wednesday, September 11, 2013 by James A. Lenes
One of the most frequent questions I receive when speaking to a client considering bankruptcy is whether the client can keep his or her home. While the answer is usually yes, there are certain issues that must be considered before a final answer can be reached. The first issue is how much equity you have in your home. In Connecticut, an individual filing a Chapter 7 bankruptcy is entitled to a $75,000 homestead exemption. A married couple filing a joint petition can claim a $150,000 homestead exemption. This means that as long as your home equity (the value of your home less the amount due on all mortgages and liens) is at or below these amounts, you should be able to keep your home. For example, if a married couple’s home is worth $350,000 and they owe $250,000 in mortgages and liens, their equity is only $100,000. Since the couple is entitled to claim a homestead of up to $150,000, the couple should be able to protect all of their equity in bankruptcy and keep their home. On the other hand, if the same couple only owed $150,000 in mortgages and liens, then they would have $200,000 of equity ($350,000 less $150,000). With $200,000 of equity and a homestead exemption of only $150,000, the bankruptcy trustee will want to collect the difference ($50,000) for distribution to creditors. In order to collect the $50,000, the bankruptcy trustee may seek to sell your house.
Assuming you do not have too much equity, the next question is whether you are current on your home mortgage. Mortgage lenders tend to commence foreclosure proceedings when a loan is at least three months delinquent. During the recent economic downturn, some lenders have waited longer than three months. If you file a Chapter 7 bankruptcy when you are behind on your mortgage, a lender is very likely to seek permission from the bankruptcy court to commence foreclosure proceedings even if your equity is below the levels discussed above.
In any specific case, there are usually other variables which may ultimately effect whether you can keep your home in bankruptcy. Discussing your situation with a competent attorney is a critical first step. If I can be of assistance in analyzing your bankruptcy questions, or if you have questions relating to other areas of business law, please feel free to call or email me.
James A. Lenes
Willinger, Willinger & Bucci, P.C.
855 Main Street, Bridgeport, CT 06604