Can I Keep Land if I File for Bankruptcy?

When an individual files bankruptcy, many of their assets are subject to court seizure.  This is especially true when filing a Chapter 7 bankruptcy.  Debt forgiveness cases and any proceeds from excessive assets are used to help repay creditors who have suffered losses as the result of a consumer’s bankruptcy.  However, some basic assets and retirements cannot be forfeited in bankruptcy.  In general, a debtor may claim exemption of his homestead and certain personal property from attachment and execution of a judgment in a bankruptcy proceeding.

Land Chapter 7 Bankruptcy Cases

People who choose to file a Chapter 7 bankruptcy risk losing their house if it is mortgaged and they have not been able to maintain their payment or have a lot of equity in the property.  Chapter 13 cases don’t usually involve losing a home.  Any second home or land is usually taken in bankruptcy, especially in Chapter 7 cases.  Chapter 13 debt restructuring cases also face the likelihood of losing investment real estate. 

The Benefits of Choosing Chapter 13 Bankruptcy

A major benefit of Chapter 13 bankruptcy is that it allows you to lower the amount that you own on many secured debts.  The ability to lower the amount is called “cram down”.  Secured debts are those where you have pledged as collateral things that you own, such as a car, furniture, business equipment, or a house.  When you finance these purchases, you make monthly payments to repay the loan.  In most cases, the value of the item you are financing decreases faster than the loan being repaid.  Most of the time, the value of the collateral you pledged will be less than the payoff balance of the loan.  This is known as being “upside down” on your loan.

The “cram down” provisions in Chapter 13 of the Bankruptcy Code allow you to pay off these types of debts for less than what you own.  Instead of paying what you owe, you are allowed to pay only the value of the items serving as collateral.  This will allow you to get out from a bad situation, while still retaining the property involved.

Always Get Qualified Legal Advice

Because the bankruptcy laws are extensive and complicated, it is imperative that you hire a legal professional to assist you.  It is a full-time job for most attorneys to keep up on the bankruptcy laws, exemptions laws, and procedures.  Most lawyers offer a free consultation and will be glad to review your case and make a legal recommendation.