Will I Lose My Home Or The Equity In My Home If I File Bankruptcy?
Posted on 16 February 2010 by Ted Agnick, The Lawyer
Arizona Bankruptcy Laws Allow You To Keep Up To $150,000 Equity In Your Home!
The answer depends on whether you are current on your mortgage payments and whether you file chapter 7 or chapter 13 bankruptcy. Generally, people fall into two categories regarding their home. They are either current or not current on their home mortgage payments.
If You Are Current On Your Mortgage And Have Less Than $150,000 Equity
If you are current on your mortgage, meaning you are not behind on any payments, you will be able to keep your home so long as you do not have more than $150,000 equity in it. For example, if your house is worth $250,000 and you only owe $100,000 on it, you can file bankruptcy, keep your home and the $150,000 equity remains yours.
If You Are Current On Your Mortgage And Have More Than $150,000 Equity
If you are current on your mortgage payments and have more than $150,000 equity in your home, two things generally will occur. The Bankruptcy Trustee can sell your home and pay you back $150,000 from the proceeds of the sale of your home. Or, you may strike a deal to pay the Bankruptcy Trustee the difference between your $150,000 equity and the total equity of your home.
For example, if your home is worth $250,000 and you only owe $75,000 on your mortgage, then the first $150,000 of equity is protected. But, the remaining $25,000 in equity is not protected. Consequently you will have to make a deal with the Bankruptcy Trustee to pay back the $25,000 so you can keep your home or allow the Bankruptcy Trustee to sell your home and pay you $150,000 from the sale proceeds.
Option One: Pay The Difference
There are several ways to pay the Bankruptcy the difference. You can get a loan for the difference or perhaps someone in your family can give you the money to pay the difference. Another possibility is to pay off the difference over a period of three to five years in a Chapter 13 Bankruptcy plan.
There are several important things to remember when calculating the difference you will have to pay the Bankruptcy Trustee. First, the market value of your home is somewhat negotiable. So you may be able to reduce the amount you will pay back if you can establish your home has a lower market value. Second, you can reduce the amount you will pay back by negotiating sale transaction costs out of the total equity, i.e., administrative expenses as well as marketing and real estate agent commissions.
Option Two: The Trustee Pays You For Your $150,000 of Equity
If you cannot pay the difference, as set forth above, then the Bankruptcy Trustee will likely sell your home and pay you your $150,000 in equity. You can then use that $150,000 to purchase another home. One key point to remember is the Bankruptcy Trustee must believe there is enough equity in your home to pay all the administrative expenses of acquiring and selling your home as well as paying you back your $150,000 equity. So if you have a little equity over $150,000 and you cannot pay the difference, then the Bankruptcy Trustee may not sell your home if there is not enough equity to pay for administering the sale and paying you back your $150,000.
If You Are Not Current On Your Home Mortgage Payments
If you are not current on your mortgage you may still be able to keep your home. This applies whether you have equity in your home or not. In fact, many people file bankruptcy in an effort to keep their home when they are behind on their mortgage payments. There are several bankruptcy options that apply which will help you keep your home when you are behind on your mortgage.
If you have equity in your home, one option is to sell your home and take your equity up to $150,000. Other options apply whether you equity or not. You can try and keep your home by pursuing bankruptcy options for delinquent mortgages. For more information on these options, see my article titled : Will Filing Bankruptcy Stop Foreclosure?
