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Bankruptcy: can you keep your house?

Declaring bankruptcy sounds scary, and many people worry that they will lose everything if they do. However, bankruptcy was designed to help you. The government wants to pull you out of financial trouble and help you make a fresh start. Therefore, they allow you to keep a number of items that are considered necessities. At the same time, extravagant items may be taken away or simplified. So what does that mean for your current house?


Type of house

You stand a good chance of retaining your primary residence. However, second homes, vacation homes or other property will be liquidated to pay off debts.

Type of bankruptcy

You can either file for chapter 13 or chapter 7 bankruptcy. Each type comes with separate exemption amounts. Exemptions allow you to keep certain assets as long as they value under a determined dollar amount. Chapter 7 exemptions are typically lower than chapter 13 exemptions. If your house falls above the exemption amount, you will be forced to sell it and move to into more modest accommodations.

Amount of Equity

When analyzing whether you can retain your current house, bankruptcy trustees examine how much equity you have in your house. To calculate your equity, subtract your mortgage and home loans from the market value of the home. If you have little to no negative equity, your house will probably be exempt and you stand a better chance of keeping it.

If you have high negative equity, you may be forced to sell your home to pay back some of your debts. If you can pay the trustee for the value of your home, you may be able to “buy it back” if forced to sell.


Ask yourself whether or not you can afford your monthly mortgage payments. Once you are through the bankruptcy process, you can keep your house only if you can afford your payments. If you cannot afford your payments, the bank may foreclose on your house. If you think that you will have trouble making monthly payments, consider moving tog a house with lower mortgage payments.

Legal counseling

The bankruptcy process can be confusing. Consider contacting an attorney who can explain the bankruptcy process, and help you get back on your feet.