The K in the Bankruptcy Alphabet stands for Keeping, as in keeping your house. Most people who file for bankruptcy want to keep their house. Even now, with house prices so much less than the balances owed on mortgages, people ideally want to keep their house. So how does that work? There are two pieces to the puzzle of whether you can keep a house in bankruptcy, equity and payments.
First, in a Chapter 7 (full, or debt elimination) bankruptcy, people are allowed to protect a certain amount of equity in a house they live in, depending on the state of their residence. For example, in Illinois, people are allowed to protect or “keep” $15,0000.00 per person worth of equity in their house. So if you are married, you’d get to protect $30,000.00. Equity is calculated as the current market value of the house, minus the loan balances, minus costs of sale. You can get an idea of the market value of your house by checking internet sources like www.zillow.com, or by calling a local realtor, or by looking in the local newspaper to see what homes in your neighborhood are selling for. You can find your loan balance by looking at a recent mortgage statement. Costs of sale are for things like realtors’ commissions, and closing costs. (A rule of thumb is to estimate that at 10% of the total sale price). For example, if your house, owned with your spouse, is worth $120,000.00, and you owe $80,000.00, costs of sale estimated at $12,0000.00, the net equity would be 120-80-12=28,000.00. Since 2 people are allowed $30,000.00 worth of equity, you would be able to keep your house if you currently live in the house inIllinois.
The second piece of the puzzle is payments. In order to keep your house, generally, you need to be current in your mortgage payments. There are programs from the government and certain lenders that give people who are behind in their payments possible ways to modify or change their loan to allow them to keep their house. However, those programs have only helped a small percentage of homeowners, and you cannot count on getting help. The only thing you can count on is this: if you are up to date in your payments, you will keep your house out of foreclosure. In a Chapter 7 bankruptcy case, if you are up to date in your payments, and, if you don’t have too much equity, as we discussed above, you’ll keep your house.
If you are behind in your payments, you do have a way in bankruptcy court to keep your house, Chapter 13. In this type of bankruptcy case, you would meet with your lawyer to develop a “Plan” to make your current payments each month, along with a Chapter 13 payment, which can be used to catch you up in your payments over 3 to 5 years.
All of these concepts are very important, and you need to review them with an experienced Bankruptcy attorney. Call us if you have questions about your situation, so that we can help you keep your house.
Daniel J. Winter
LAW OFFICES OF DANIEL J. WINTER
53 W. Jackson Boulevard, Suite 725
For other Bankruptcy Alphabet articles on the letter K from Bankruptcy attorneys around the country:
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