Like many people who need to file bankruptcy, you may not have the means to satisfy your debts through a Chapter 13 repayment plan. You will likely fear the prospect of filing Chapter 7 bankruptcy, though, since it could cause you to lose your home. Keeping it after filing Chapter 7 bankruptcy is harder than keeping it after filing Chapter 13 bankruptcy. Yet, it is still possible, depending on the equity in your home and whether you are current on your mortgage payments.
Understanding Tennessee’s homestead exemption
The amount of equity you have in your home – the difference between its market value and the remaining balance on your mortgage – could determine whether you keep it after filing Chapter 7 bankruptcy. If this amount does not exceed Tennessee’s homestead exemption, it is unlikely your bankruptcy trustee will sell it to satisfy your creditors. Under this exemption, you can protect up to $5,000 of equity in your home if you are single and $7,500 if you are married. Yet, if you are over the age of 62, you can – if you are single – protect up to $12,500 of equity in your home. If you are married, this amount increases to $25,000. If you are older than 62 but your spouse is 62 or younger, this amount drops to $20,000.
The equity in your home may exceed the homestead exemption that applies to you. In this case, you can also use Tennessee’s wildcard exemption to protect it. This exemption allows you to protect up to $10,000 of personal property of your choosing – which could include your home.
Mortgage payments matter
No matter the equity in your home, you must make sure you remain current on your mortgage payments. If you are not, keeping your home will be difficult and your bankruptcy trustee will likely sell it to satisfy your creditors. Yet, an automatic stay could protect you. It will go into effect once you file bankruptcy, and it will prevent creditors from collecting any debts you owe them – including mortgage loan debt.
During your automatic stay, you will want to contact your mortgage lender to work out a loan modification. While your lender may agree to the modification, you will need to file a motion for the court to approve it. Alternatively, you will need to request that your trustee files a motion to abandon your home from your bankruptcy estate. In either case, you will still lose your home if your bankruptcy trustee determines your creditors are entitled to it.
Keeping your home during Chapter 7 bankruptcy is difficult. Yet, it is far from impossible. With the help of an attorney, you can take the necessary steps to protect it.
