debt

Will I lose home if I file Ch. 7 bankruptcy?

Justin HarelikDear Bankruptcy Adviser,
Will I lose my house if I file Chapter 7 bankruptcy? I don't have any income because of a surgery. I can't pay my bills because I have no income. I will get Social Security eventually, but I need to file bankruptcy. I just don't want to lose my house even though I can't afford the mortgage payments.
-- Anna

Petition to file bankruptcy © zimmytws/Shutterstock.com

Dear Anna,
There is almost nothing worse to hear from a client. While I can't do much to help a client with similar circumstances, I just always feel the worst when I hear stories like yours.

As you can imagine, I get this question often. It is always hard to answer, because it isn't the bankruptcy that will cause you to lose your house, it's the failure to pay the mortgage. In your scenario, bankruptcy might be the best way to protect your home's equity.

The ability to protect equity in your home varies from state to state. In Florida, you can protect 100 percent of the equity in your owner-occupied home. In California, you can protect from $75,000 to $175,000 in your owner-occupied home. You need to know what amount you can protect in your state prior to filing.

Know that the advice I'm going to offer you is objective and not based on the emotion you are dealing with. I understand you don't want to lose your home. I understand you don't want to move. I understand you want everything to work out without having sufficient income to make it work. You are lost, seeking hope when things are hopeless.

Here is what I would suggest: If you do have more equity in your house than you could protect and you can't afford the mortgage payment, you need to sell your home. Period.

You need to remove emotion from your decision. These are the steps you should take, even though you probably don't want to hear it:

  • Talk to a bankruptcy attorney. You need to find out whether you can file Chapter 7 bankruptcy to wipe out credit card debt, medical bills and other debt, while still protecting the equity in your home.
  • If you can file Chapter 7 and protect the equity, file right away. Home values are going up in most states. Hopefully, you are not too far behind on your mortgage payments. The Chapter 7 filing can buy you a little time. In an ideal world, you can start working again and make the mortgage payments once your bankruptcy case closes.
  • If you can't file Chapter 7 and protect the equity, list the property for sale right away. You can just stay in the house, rent-free, for some time. Just know that each late payment will eat up the equity in your home. However, selling the property right away will get you the most money from the sale. You will need that money for future rent and maybe to pay down some of your debts.

Some people might say to hold off as long as possible, stay in the house, don't pay the mortgage and hope you circumstances change. As I said, my answer is based on an objective view of your situation. You likely will base your decision from an emotional, subjective view. I can't blame you for that. To be frank, if we changed places, I might make the same decision.

Good luck.

Ask the adviser

To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "Bankruptcy" as the topic. Read more Bankruptcy Adviser columns and more stories about debt management.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
advertisement

Debt Adviser

Don't be seduced by this debt plan

Dear Debt Adviser, I have about $50,000 of debt on credit cards. My credit rating is still high. I am thinking about a debt consolidation loan. Will that adversely affect my credit rating? -- DT Dear DT, The cliche... Read more

advertisement

Connect with us