Will they take my house if I file bankruptcy? (Part 1)

I'm current on my house mortgage payments but am way in debt for other things. If I file bankruptcy, will they take my house? As with many questions about bankruptcy, the direct answer is a strong "it depends".

Let's see what might happen in a Chapter 7 bankruptcy, the type of bankruptcy in which you get rid of your unsecured debts, those debts (like credit card debts) that are not secured by your property (like your car loan or home mortgage) quickly and completely. In a Chapter 7 bankruptcy, all of your assets, everything you own, can be taken by the bankruptcy trustee for the benefit of your creditors EXCEPT property that you "exempt" in your bankruptcy filing. Let's look at your house…

Do you owe as much or more on it than it's worth in today's market? If the answer is "Yes", then the trustee wouldn't have anything left to pay to your creditors after the house is sold and the mortgages are paid. That means your house is safe in a Chapter 7 bankruptcy. Did you ever think you'd be glad that the value of your house dropped? You might be glad right now.

If you house is worth more than you owe on it (after the cost of selling it), then that money (your "equity" in your house) would be left over after a sale and would be available to give to your creditors. In this case, the trustee would likely sell your house UNLESS you can EXEMPT that equity. As you can imagine, exemptions are a very important subject. So, can you exempt the equity in your house? In California, here's how you find out.

1. California has a "homestead" exemption (contained in the "704" set of exemptions) you can use to exempt your home. The amount of that exemption is based on your age and other factors.

$75,000 – Single person, age 64 or younger
$100,000 – Married person with the spouse living in the house, age 64 or younger
$175,000 – Debtor or spouse (living in the house) is one of the following:
– 65 or older
– Physically or mentally disabled so as to be unable to engage in substantial gainful employment
– 55 years of age or older with a gross annual income of not more than $25,000 or, if the debtor is married, a gross annual income of both debtor and spouse of not more than $35,000 and the sale is an involuntary sale.

So, if your equity in your home is not more than the above exemption amount for your situation, you can keep your home. If your equity is more than that, you may not be able to keep it in a Chapter 7 bankruptcy. You'll need to consider a Chapter 13 bankruptcy which we won't discuss in this article.

Note also that if you use this homestead exemption, you won't get the benefit of the California "Wild Card" exemption (see the next paragraph). You'll need to discuss with your bankruptcy attorney what the lack of the Wild Card exemption means to you.

2. If you only have a small amount of equity in your home, for example $10,000, then you could choose to not use the large California homestead exemption and instead use the "Wild Card" (703) set of exemptions. In this set of exemptions, you get a $26,925 (as of 4/1/2013) to use for anything (as many items as you want) including the equity in your home. So you could use $10,000 of that exemption for your home, leaving $14,250 for exempting other things like your bank accounts, and protect your home from sale in your Chapter 7 bankruptcy case.

As mentioned above, the next article will cover using a Chapter 13 bankruptcy to protect your home if a Chapter 7 won't do it.

Will they take my house if I file bankruptcy? (Part 2)
Will they take my house if I file bankruptcy? (Part 3)

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12 Comments

lindaMay 24th, 2013 at 5:28 am

my home is worth with the property around 300,000 my husband died 2 yrs ago left me oweing alot of money ive lost alo already and dont see any way out other than filing bankrupt im 65 years old how do i keep them from getting my money when i sell mu home later?

Malcolm RuthvenMay 24th, 2013 at 6:08 am

Hello Linda,

It's a matter of keeping your home when you file and go through the process of bankruptcy. If you're successful at that, then after your bankruptcy you're free to do anything you want with your house with no problem about losing the money you receive from the sale because of your bankruptcy.

The article above, and the other articles available from the links at the end, should give you an idea of whether you would be able to keep your house in a bankruptcy.

I'd recommend that you get a consultation with an experienced bankruptcy attorney in the area where you live to discuss this in more detail.

A. OcampoMarch 25th, 2015 at 6:37 am

I filed chapter 7 bankruptcy and discharged 4 years ago i still live in my property i am on time paying my mortgage every month. Am i still entitled for the title and profits if i sell the property?

Malcolm RuthvenMarch 25th, 2015 at 6:58 am

Angelo, from the facts you stated I can't imagine a reason that your past Chapter 7 bankruptcy case would have anything to do with you and your property at this time.

All the best…

KaynessJuly 15th, 2015 at 3:01 pm

I am considering filing for Chap 7. I owe about $280K on my home which is worth $358K(according to zillow). I am head of household and have three children. How do they determine the equity of my home, and who does that estimate? Or will they also use zillow to determine what my home is worth?

Malcolm RuthvenJuly 15th, 2015 at 8:35 pm

Kayness, It all depends on what our state allows for what's known as a "homestead exemption" in bankruptcy. If you can exempt your equity in the house, u\you should be fine in that regard in a Chapter 7. The trustee assigned to your case might get his/her own appeaser to state a value for the house. If you don't agree wit that number and it's not in your favor, it will be up to the judge to decide. Do yourself a big favor and consult with an experienced bankruptcy attorney in your area. You have too much at stake and this is not simple stuff.

KaynessJuly 16th, 2015 at 7:59 am

Thanks Malcom. I am in California. I have 3 credit cards in collection that totals about $14K. I'm worried a attorney would be too costly for me. Do you think my case is simple enough to file myself or use use a paralegal instead?

Malcolm RuthvenJuly 16th, 2015 at 11:57 am

Kayness, I stand by what I said before. A Chapter 7 filing is like jumping into the deep end of the pool, in that you'd better know how to swim. Your situation is more complex that you think, with California's two sets of of exemptions and theh equity in your home. My opinion is that you can't afford not to retain an experienced bankruptcy attorney.

KaynessAugust 4th, 2015 at 8:27 am

Hi Malcom,

I am considering filing Chapter 7. Can you please take a look at my information below and based on your experience what is likely to happen? I’ve read that taking a loan against my car Title would be an option to save my car and I really don’t want to have to do that, but if that’s the best option for me, I may have no choice but to do so.

I have a 2010 Mazda CX-9 worth about $8K – my car will be paid off this month. Will this be too much of a value? I don’t want to lose the car.

I bought a house with a relative in 2012. Current house is worth $358K (per Zillow) with $280K left on the loan. There are two people on the loan, and 3 people on the Deed. When determining my share of the equity value is it divided between the two people on the loan or divided by the three people on the Deed?

My gross income is about $3,300 a month.
Family of 4 (myself and three children ages 13, 17, 19).

Thank you.

Malcolm RuthvenAugust 4th, 2015 at 11:36 am

Kayness, you're asking for an evaluation that requires much more than a quick internet reply. You really need to get a consultation with an experienced bankruptcy attorney in your local area. Much depends on the exemptions (things you can keep during a Chapter 7) available in your particular state. If you're in the San Francisco Bay Area, I'd be happy to give you a free consultation; just click on "Free Consultation" in the menu bar at the top. If u don't live in the SF Bay Area, find an experienced bankruptcy attorney in your area.

ScarlettAugust 24th, 2015 at 10:55 am

Hi Malcom.

I want to file BK but I recently sold my car to an auto dealership and received money. I know I shouldn’t be using it to pay any of my credit cards if I’m going to file BK, but can I use some of the money to pay off my 401K loan and not have it be an issue when filing for BK? I have children and withdraw cash from my checking account quite frequently for them to use for gas, food and school too, and I hope this isn’t a bad thing?

Malcolm RuthvenAugust 24th, 2015 at 1:02 pm

Scarlett, you need to discuss those issues with your own bankruptcy attorney, so I suggest your first order of business is selecting a good one for you. That said, and without knowing any more facts so this is really not a legal opinion, you should be OK doing what you suggest. But again, do yourself a favor and consult with and retain an experienced bankruptcy attorney in your area.

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