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Filing Chapter 13 With Home Equity

Can I file Chapter 13 if I have equity on my house for $150k and owe $80k for credit cards?

Can I file Chapter 13 if I have equity on my house for $150k and owe $80k for credit cards?

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Bills.com | Find Learn Save

Generally, you can keep your property, such as your home and vehicles when filing bankruptcy, but there are several countervailing considerations that prevent an absolute “yes” or “no” answer. There are two basic types of consumer bankruptcy, Chapter 13 and Chapter 7, each with different requirements regarding the debtor’s property. For more information about the types of bankruptcy, you should visit the Bills.com bankruptcy page.

In most cases, you can safely file Chapter 13 and keep all of your property if you continue making regular payments on your home and vehicles while you are paying your other creditors through the Chapter 13 Plan. Of course, the reasonableness of the debtor’s assets and repayment plan is always an unwritten qualification; a bankruptcy judge is not going to allow a debtor to come into court with five luxury homes and expect his unsecured creditors to wait for payment while he pays five mortgages outside of the bankruptcy plan.

Chapter 7 bankruptcy, also called liquidation bankruptcy, allows a debtor to discharge most unsecured debts. The major limitation to keeping property in a Chapter 7 is the property exemption limits provided by your particular state's laws. Some states' exemptions are generous while others are strict. In fact, some individuals with lots of cash and property move to a different state, usually Texas or Florida, before filing for Chapter 7 protection to take advantage of those states- generous exemptions.

When you have your first consultation with your bankruptcy attorney, you should come in with a set of goals and priorities. Tell the attorney, "I need to file bankruptcy, but I do not want to if there’s a chance that I’ll lose my house or car." At that point, let him figure how to meet your expectations. None of the exemption amounts are absolute, so he will estimate your property values using an allowable standard most favorable to you so that the statutory limits are not a problem. For more information about your state's exemption amounts, you can visit BCSAlliance.com.

For consumers considering bankruptcy, the most important piece of advice I can offer is to find an experienced and well respected bankruptcy attorney. A good attorney will be able to fully analyze your circumstances and help you decide if bankruptcy is the right choice for you, and if so which chapter you should file. A good lawyer will also be able to design a plan that will preserve your assets to the greatest extent possible. Also, the amount of debt you have should not affect your ability to file bankruptcy, except that it may change which chapter is best for you depending on your income — this is an issue which you should discuss with your attorney.

You must carefully weigh your options before deciding to file bankruptcy, but you should know that it is extremely rare for a debtor to lose possession and ownership of any property he wants to keep, especially the family home or vehicle. To learn more about bankruptcy, I encourage you to explore the Bills.com bankruptcy page.

Hopefully this information will allow you to be better informed when discussing bankruptcy with an attorney, and help you Find. Learn. Save.

Best,

Bill

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2 Comments

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  • MJ
    Jul, 2011
    Molly
    Asheville, NC
    I am married and have been home raising two children. Before marriage and babies, my credit was awesome. But, I had a good bit of credit card debt from trying to start a small business which is still running-not making money yet, but pays its overhead-- the debt is roughly($50k)between 2 personal credit cards. I vowed to not let my husband take on debt that was not his venture. I have stressed over making minimum payments on them for a few years as I have not been able to find a job that pays enough to cover childcare and is patient enough with day-to-day parental handicaps. I have one child who has had a compromised immune system and preschool (which we couldn't afford for 2 children) made him too sick ALL OF THE TIME--thus, I was home with him. So, I finally gave up and got behind on making payments. Now, I have a letter from an attorney regarding one card. I know I need to find a resolution. Is it possible to file bankruptcy without dragging my husband into it? Because we are married, I am on the deed to our modest home. He doesn't make much, we can't even afford healthcare, life insurance and children's college savings. Can you tell me how/if I can keep him out of the process? He has decent credit and might need to refinance our mortgage at some point...
    1 Votes

    • BA
      Jul, 2011
      Bill
      There are no perfect solutions to debt problems. Each has its own pros and cons, costs and benefits. Visit the Bills.com Debt Coach to get a no-cost, no-gimmick, online evaluation of your options, and the costs of each.
      0 Votes

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