In my bankruptcy alphabet, H is for house.
Can I keep my house if I file bankruptcy, anxious homeowners ask.
In most cases, my answer is “yes”.
Should you keep the house is another question.
Houses are vulnerable in bankruptcy only if there is
- significant equity
- above the total of the mortgage payoffs and delinquent property taxes, and
- above the homestead exemption allowable to the debtor, and
- above the expenses of sale like real estate commissions
If the trustee can’t sell the property for enough money to pay costs of sale, property taxes, mortgages and their arrears, and the debtor’s homestead, the house will be abandoned by the trustee back to the debtor.
It’s black letter law that liens pass through bankruptcy unaltered, unless there is a bankruptcy court order to the contrary. The liens of the mortgage lenders and any back property taxes remain valid charges on the property.
Even though the bankruptcy discharge prevents the lender from suing the borrower, the lender can still foreclose on the property if state law allows.
The more difficult question, then, is whether the homeowner, now free of the old unsecured debt, can work it out with the lender. The bankruptcy case neither compels nor frustrates the attempt to modify a mortgage loan.
My questions are, can the homeowner
- Make the regular payments
- Catch up on any missed payments
- Modify the loan to better terms
My hope for my clients is that they can look at homeownership with a clear head, and make a sound, economic decision about whether to keep an troubled piece of property. In the end, home is where the heart is not where your name is on the title.
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