Do you lose your home if you file for bankruptcy?


Chapter 7 or Chapter 13 bankruptcy: advantages and disadvantages

There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is known as liquidation bankruptcy, which means that your unprotected assets are sold to pay off some of your unsecured debts like credit cards or medical debts. To be approved, you must pass a means test to show that your income is low enough and your expenses high enough to warrant filing Chapter 7.

Related article: Bankruptcy: The Differences Between Chapter 7 and Chapter 13

If you’re earning too much money, you may need to apply for Chapter 13 instead. This type of bankruptcy is known as the employee’s plan. Your assets are not sold to pay off your debts; instead, you are put on a three to five year repayment plan to pay off some of your debts. You need a stable income to be approved for Chapter 13. One of the benefits of Chapter 13 is that if you are behind on your mortgage payments, you have a chance to catch up.

If you don’t have a lot of equity in your home, are up-to-date on your mortgage, and your state’s laws allow you to exempt a good deal of equity, you may be able to keep your home in a safe place. Chapter 7 bankruptcy. Bovee rarely recommends filing Chapter 13 – a much more expensive, time consuming and less successful option. The one main exception, he says, is when someone has a lot of equity in their home that is not protected by the laws of their state.

Related Article: How To File Chapter 13 Bankruptcy

While you don’t have to liquidate your assets in a Chapter 13 bankruptcy to pay off your debts, the value of your non-exempt property still matters. The courts will first determine your disposable income (how much money you have when your expenses are deducted from your monthly income) and then the value of your non-exempt property, including any unprotected equity. During your repayment plan, you will need to repay your creditors according to the highest amount.

With Chapter 7 and Chapter 13 bankruptcies, you’ll need to stay up to date on your mortgage payments if you want to keep your home. But it’s good to know that keeping your home and declaring bankruptcy can both happen. Part of your success depends on where you live.

This article originally appeared on Resolve and has been syndicated by


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