Will I Lose My Home if I File for Chapter 7 Bankruptcy?

If you’re considering filing for Chapter 7 bankruptcy, you probably have a lot of questions—including whether bankruptcy will put your home at risk. If you file for Chapter 7 bankruptcy, you won’t necessarily lose your home—particularly if you don’t have much home equity and your mortgage is current. However, if you have a significant amount of equity in your home, you may be better off filing for Chapter 13 bankruptcy. In this article, we examine the effect that filing for Chapter 7 bankruptcy can have on your home. 

Important Factors

Whether you’ll lose your home in Chapter 7 bankruptcy depends on 

  • whether your mortgage is current,
  • whether you’ll be able to continue making mortgage payments after filing for bankruptcy,
  • the amount of equity you can protect using a homestead exemption, and
  • the amount of equity you have in your home.

Is Your Mortgage Current?

You may lose your home in Chapter 7 bankruptcy if you’re behind on your mortgage payments when you file. Although the court issues an automatic stay when you file, this usually only serves to delay the foreclosure process for a few months. The reason that filing for Chapter 7 bankruptcy won’t cure a default is that a mortgage is a secured debt. Therefore, Chapter 7 bankruptcy won’t wipe out the mortgage lien that permits the lender to foreclose if you fail to make your payments. In addition, Chapter 7 bankruptcy doesn’t provide a way for you to catch up on past-due payments.

How Much Equity Do You Have in Your Home?

If your mortgage payments are current, you’ll need to determine how much equity you have in your home. The process for doing this is easy. First, value your home. Next, subtract any outstanding mortgage balance from your home’s value. The equity in your home is the amount you’d keep if were you to sell your home.  

If you don’t have any equity, then your home should be safe—bankruptcy trustees don’t sell houses that don’t have equity. If you do have equity, however, you’ll need to be able to protect it with a bankruptcy exemption to avoid losing your home in Chapter 7 bankruptcy.

Chapter 13 Bankruptcy

If you are behind on your mortgage payments and want to keep your home, filing for Chapter 13 bankruptcy may be an option for you to consider. Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy allows you to catch up on your mortgage payments over the course of a three-to-five-year repayment plan. In addition, if you have more equity in your home than you can protect with a homestead, you can pay your creditors the value of the non-exempt equity in the plan to protect your home. 

Contact a Milwaukee Bankruptcy Lawyer 

If you are considering filing for bankruptcy and want to protect your home, you should contact an experienced Milwaukee bankruptcy lawyer as soon as possible for guidance. At Hanson & Payne, our experienced bankruptcy attorneys will guide you through the bankruptcy process and advise you on the best course of action based on your unique situation. Please contact our office today to schedule a free consultation.