One of the most common questions people have pertaining to the personal bankruptcy process is whether or not they can file and still keep their house. In fact, this very question prevents many would-be filers from following through with the claims process because they are afraid of what might happen. If only these struggling homeowners had the information they needed to make an informed decision!

So, if you file bankruptcy can you keep your house? The simple answer is that it depends on your current cash flow situation and whether or not you have any equity in your home. Equity can be calculated by taking the current market value of your home and subtracting the following from it –

• Your outstanding mortgage balance

• Fees associated with selling your home (listing fees, real estate fees, etc.)

• Any back property taxes

In other words, equity can be simply defined as the amount of your home that you own outright. But what does the amount of equity have to do with whether or not you can keep your home in bankruptcy? The reason that equity is important is that you will be required to pay back any equity that you’ve accumulated in order to keep your home through the bankruptcy process. The reason for this is that equity is essentially money that the bankruptcy court will want you to convert into liquid assets. After all, paying back your creditors through asset liquidation is essentially what Chapter 7 bankruptcy is all about.

In addition to the equity, you will want to pay careful attention to your monthly cash flow when determining whether or not you can hold onto your home. The reason for this is obvious, since you cannot make your mortgage payments without sufficient cash flow. In the absence of cash flow, it may make sense to surrender your home through Chapter 7 bankruptcy.

What About Chapter 13 Bankruptcy?

Unlike Chapter 7 bankruptcy that requires you to liquidate your assets to pay back your creditors, Chapter 13 allows you to reorganize and to formulate a repayment plan without having to surrender your home. The great news is that Chapter 13 can also be used in situations where the debtor has fallen behind on their mortgage payments.

The important thing to remember when formulating a repayment program in Chapter 13 is to make your monthly mortgage payment as low as possible, as this will increase your chances of being able to make regular payments. After all, the bank and the court will be looking for you to demonstrate the ability to stay current on your obligations.

Contact a Professional

Determining whether or not to file bankruptcy is not an easy decision and it’s one that shouldn’t be taken lightly. In my opinion, it’s always best to align yourself with a reputable bankruptcy attorney before making the decision to file. Fortunately, our free bankruptcy evaluation form can easily connect you with an attorney in your area.