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Saving Your Home Through Bankruptcy

If your biggest priority is remaining in your current home, you will need to examine the two types of bankruptcy and choose the chapter that is best for your situation. While every case is different, both Chapter 7 and Chapter 13 provide ways for your residence to remain in your hands.


Chapter 7 Depends on Exemptions
When you file a Chapter 7 bankruptcy, you and your attorney will choose whether to use state or federal exemptions. This chapter will require you to give up only your nonexempt property. Depending on the exemption you choose, it may be possible for you to keep much of your property and assets.

To see if exemptions would apply to your house, find the equity in your home by subtracting the amount you owe on your mortgage loan from what your home is worth. If your equity is less than the exemption amount, you probably have a chance of saving the house. If your equity is more than the exemption amount, the house will most likely be needed to pay back creditors under Chapter 7 bankruptcy.

In Massachusetts, a Declaration of Homestead, if properly filed at the Registry of Deeds, protects the first $500,000 of your home equity from being used toward other debts. Exceptions include taxes, mortgages, child support, and any debts acquired before filing the homestead. Federal exemptions protect only $20,000 of the equity in your home.


Chapter 13 Lets You Pay Your Mortgage
This type of bankruptcy creates a 3-5 year plan to pay back the amount you owe, rather than using your assets to pay back creditors immediately. In this case, you will usually keep your home.

Chapter 13 also stops foreclosure and gives you time to pay your mortgage with a plan, staying on your credit report for only 7 years instead of 10. Chapter 13 is often a good option if you are trying to protect secured debt such as a mortgage.

By eliminating unsecured debts and restructuring debts on personal property like cars or furniture, you should be able to use that freed cash to catch up on your mortgage payments over the duration of your bankruptcy plan. However, if you still do not have enough, you will have to face the possibility of surrendering your home, selling assets, or finding another source of income.


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