How Chapter 7 Really Works When Keeping Your Home

Keeping Your Home in a Chapter 7 Bankruptcy Proceeding

If you are significantly behind on your house payments and have either been served with notice of foreclosure proceedings or fear that foreclosure is imminent, you can often keep your house by filing for protection under Chapter 7 of the federal bankruptcy laws. The bankruptcy will not necessarily remove the mortgage as a lien on your home but under the right circumstances a bankruptcy can make it possible for you to keep your home and get a fresh financial start. In fact, many homeowners who file for Chapter 7 are able to stay in their homes and avoid foreclosure.

How Can You Keep Your Home in a Chapter 7 Bankruptcy Proceeding?

In a Chapter 7 filing, you are allowed to permanently discharge certain debts in exchange for the sale of nonexempt property. For example, you cannot get rid of child support arrearages, most tax debts and student loan payments. You can also claim certain types and amounts of property as exempt from sale, typically under state or federal bankruptcy rules. Federal rules allow you to claim a certain amount of equity in your home as exempt from creditors in a bankruptcy proceeding — this is known as the homestead exemption.

New Jersey does not have a state homestead exemption, but persons filing for bankruptcy in New Jersey can use the federal bankruptcy exemption, which is $22,975 per person. If a husband and wife file bankruptcy jointly, the exemption can be double that or $45,950.00! So, if you file for Chapter 7 and the net equity in your home (after broker commissions, costs of sale, and trustee commissions of about 5%), the bankruptcy trustee will not attempt to sell the home to satisfy other creditors, because there would be no benefit to other creditors from doing so. In this case, the Trustee files a “notice of abandonment” which in effect releases the home and its exempt equity back to you.

Note that if you want to keep your home, you will still have to remain current on the mortgage payments or make arrangements with the lender to cure any arrears.

For many people overwhelmed with debt, a bankruptcy frees up their available income to pay their mortgage. And while a bankruptcy discharge will not remove a mortgage lien against a home, it does eliminate personal liability for a possible “deficiency” if the home is not worth the total amount due after a foreclosure sale.

Chapter 13 provides other options for people to save their home. Check our blog or website for more information about that.

Contact Neuner & Ventura, LLP

Let us help you take back control of your life! We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every new potential bankruptcy client. (We do, however, reserve the right to charge a fee to review any work done by another attorney). For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request

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