Can I File Bankruptcy and Keep My House?

BankruptcyWhether or not a debtor loses property after filing a bankruptcy case depends on two things.  First, whether the case is filed under Chapter 7 or Chapter 13 of the Bankruptcy Code.  In Chapter 13 bankruptcy the trustee does not liquidate assets in order to provide payment to the creditors listed in the schedules filed in the bankruptcy case.  The bankruptcy plan is funded through future payments made by the debtor to the trustee.  Nonexempt property is a way to provide a minimum amount that the plan must provide to the unsecured creditors.  In Chapter 7 bankruptcy cases the trustee does liquidate nonexempt property so that money can be paid to creditors.

This brings us to the second issue affecting whether a debtor loses property.  Almost all states have a homestead exemption.  These exemptions allow the debtor to protect his home from foreclosure, attachment of liens, or other debt collection activities that affect ownership of a home.  These exemptions vary greatly from state to state.  Texas has a very generous homestead exemption which allows the homeowner to protect the entire value of their home, but with a limitation on the size of the property.  Other states offer very small homestead exemptions.  Homestead exemptions are limited to property in which the debtor resides.  This type of exemption cannot be used to protect rental property or other real estate in which the debtor does not reside.  Therefore, a debtor can only protect one piece of real property with a homestead exemption at a time.

Debtors in bankruptcy must also continue to make payments to any mortgage lenders holding a secured interest in the real property.  If a bankruptcy debtor does not make payments after filing a bankruptcy case then the bankruptcy will only prevent foreclosure temporarily.  The mortgage company will most likely file a motion to lift stay in order to begin foreclosure proceedings or it may wait until the case ends naturally and file suit after the case is closed.