Filing for bankruptcy can be an emotional time, which makes understanding the details of the process vital. It is likely you have many concerns on your mind as you go through this process, and sorting the fiction from fantasy can be daunting.
For instance, many people believe that if they file bankruptcy they will lose their home. However, this is not necessarily the case. According to FindLaw, whether or not you lose your home depends on the type of bankruptcy you file as well as the equity in the property itself.
Why does the type of bankruptcy matter?
In terms of personal bankruptcy, it is most common for an individual to file either Chapter 7 or Chapter 13. A Chapter 13 bankruptcy is a reorganization bankruptcy, and involves reorganizing your financial life to work on paying off your creditors. If you qualify for a Chapter 13 bankruptcy, you will not lose your home.
A Chapter 7 bankruptcy is a liquidation bankruptcy. This is the variety of bankruptcy where there is a chance you may lose your property. This is because the courts will liquidate your assets to pay off your creditors as much as possible.
How does equity factor in?
With a Chapter 7 bankruptcy, the amount of equity you have in your home is very important. Equity is the difference between any mortgages or home equity loans from the actual market value of the property.
If this is a negative number (in many cases people who file Chapter 7 bankruptcy have negative equity) the courts will declare your property exempt from liquidation. If your equity is positive, it is possible the courts will liquidate your property.