Will I lose my house if I file bankruptcy?

Posted by Benjamin R.. Heston | Apr 27, 2020 | 0 Comments

Chapter 7 bankruptcy is often referred to as "liquidation bankruptcy". Liquidation is the process of selling property to reduce it to cash. In the context of a bankruptcy proceeding, the cash would be used to pay off your creditors. However, in California, we have generous homestead exemptions of $75,000, $100,000, or $175,000 depending on the circumstances of your case. If your equity in the property is less than the homestead exemption, then you will be able to keep your house. However, some trustees take the position that it is not morally or ethically wrong for them to "create equity" by negotiating with your lender to reduce the balance owed on your mortgage which will, in turn, increase your equity. Because of this, even if your house would seem to be fully exempt, it is vital that you plan for the possibility that your trustee could pursue the forced sale of your property. Additionally, while Zillow, Redfin, and appraisals can give a clear picture of what your house might be worth, some trustees will nevertheless seek to market your property so that the value can be determined by actual offers received. Again, this is another possibility that you should plan for.

One of the ways in which Chapter 13 bankruptcy is different than Chapter 7 bankruptcy is that there is no forced liquidation - you get to keep all of your property unless there is any property you wish to surrender. If you have a house that would get sold in a Chapter 7 bankruptcy, you may want to consider filing your bankruptcy case under Chapter 13 instead.

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