Client FAQs: Will I lose my home in bankruptcy?

One of the most frequent concerns people have when they come in to my office is whether or not they will lose their home in bankruptcy. Oftentimes, a person's home is more than just a piece of property. It is the realization of the American Dream. It is a place where memories are made and families are raised. It symbolized achievement and ownership in a community or neighborhood. People are right to ask the question "Will I lose my home in bankruptcy?"

With any question, of course, the answer depends on the circumstances. Clients should realize that with any property they have, their bankruptcy trustee is concerned with one thing, equity. The trustee's job is to find any property that is not exempt, liquidate it, and use the money to pay off creditors. In most Chapter 7 cases, there is nothing for the trustee to sell. These are called "no-asset" cases. Simply put, if there is no equity in your home (a common situation these days), then your bankruptcy trustee will not have any interest in it. But even if you do have equity, you may still be safe. The Ohio bankruptcy exemptions for homes (the "homestead exemption") allows any person to exempt $21,625 of equity in their primary residence. Double this for joint owners ($43,250). Even if you have more than this, your trustee may not pursue your property if they will not realize any money when taking into account the costs of sale.

If you have too much equity in your home, there is one of two ways this is resolved. Either the trustee will sell your property (and pay you the value of your exemption), or you can pay the trustee money to keep the property (in an amount agreed upon between the trustee and your attorney). If neither of these is an option, you should consider a Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy, you do not lose the property, although the nonexempt portion of your equity is taken into account for purposes of your plan payment.

Finally, you should make sure that your mortgage payments are current, or that you have arrangements with your mortgage company, if you want to keep the home. If it is behind, you may want to consider a Chapter 13 bankruptcy to get it caught up or stop a foreclosure. Also, you can sometimes get rid of, or "strip", a second mortgage if you complete your Chapter 13 Plan and get a discharge.

For more information on Chapter 7 and Chapter 13, visit my website at http://www.ohiobankruptcyrelief.com/.