I have some equity in my house. I've heard that if I file for Chapter 7 bankruptcy, I'll lose my home because of this equity. Is this true?
Will I lose my home in Chapter 7 bankruptcy if I have equity in my house?
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Answer: (1)
In Chapter 7 bankruptcy, the bankruptcy trustee may sell your property in order to pay unsecured creditors. However, bankrupty law protects certain property up to certain amounts from the reach of the trustee. Property that is safe is called exempt property.
Whether you can keep your home depends on how much equity your homestead exemption protects. The amount varies widely by state. Some states protect all of your equity, no matter how much. Others protect only a small amount. Some states allow you to use the federal bankruptcy exemptions, which currently exempts up to $21,625 in your home (you can double this amount if you are married and filing jointly.) (To learn more about the homestead exemption, see the articles in Bankruptcy Exemptions.)
If your homestead exemption doesn't cover all of your equity, you may be able to add a wildcard exemption to your homestead exemption. Or you may be able to pay the trustee the amount of nonexempt equity in order to keep your home.
To learn more, see the articles in Your Home in Bankruptcy.
Posted by Staff Attorney on 22 Jan 2010