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Can You Protect Your Home In Chapter 7 or Chapter 13 Bankruptcy?

bankruptcy-keep-houseIf you own a home and you are in financial turmoil, you may be wondering what will happen to your home if you file for bankruptcy. For many, the primary concern that they have when entering the bankruptcy process is that their home is protected. This blog will explore the implications of filing for personal bankruptcy in a chapter 7 or chapter 13 on an individual’s residential real property.

As an aside, in either chapter 7 or chapter 13 a debtor would need to continue to pay their mortgage and property taxes in order to avoid an eventual foreclosure.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the liquidation chapter of bankruptcy. A trustee will be appointed upon the case being filed to administer the case. Mostly, the trustee will be examining the case for assets to see if there are assets available to distribute to creditors. The primary asset in most cases is real property owned by the debtor. If the mortgage(s) on the real property exceeds the property’s value, then there is no equity in the property and the trustee will likely abandon his or her interest in the property. If the real property value exceeds the value of the mortgage(s) on the property, then debtor will need to utilize the allowed exemption under 11 U.S.C. § 522(d)(1).

Pursuant to that code section, a debtor can protect up to $23,675.00 of his or her equity interest in real property that is used as a primary residenceIf a married couple is filing a joint bankruptcy, the house is jointly owned and used as a primary residence for both spouses, then that exemption amount can be doubled. The trustee will only be able to pursue a debtor’s residence if there is equity in the property after deducting the mortgages, the exemption and the cost of sale. Generally, if there is not equity in property after deducting the mortgages, the exemption and the cost of sale, then the trustee will abandon his or her interest in the property. This is the official action taken by the trustee to signify that he or she will not be pursuing the residence toward a recovery for creditors.

However, if there is equity in the property after the above-mentioned deductions, then the trustee will seek to recover that amount to repay creditors. To keep the property, the debtor would then likely need to pay the trustee the amount of their non-exempt equity in the home. Otherwise, the trustee is likely to sell the property. In that event, the debtor can still generally claim the exemption allowed under 11 U.S.C. § 522(d)(1) in the form of cash from the sale.

Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is a personal reorganization for individuals where the debtor pays the chapter 13 trustee on a monthly basis. In a chapter 13 bankruptcy, the same rules apply as they do in a chapter 7 bankruptcy in terms of the allowed exemption under 11 U.S.C. § 522(d)(1). The bankruptcy code mandates that creditors need to be treated as they would in a chapter 7 bankruptcy liquidation. However, there is no trustee appointed to liquidate the assets. Instead, the debtor must pay over the course of their chapter 13 plan at minimum the non-exempt equity they have in property.

A chapter 13 plan has some flexibility in how payments towards the plan can be made. The plan may propose to pay non-exempt equity through equal monthly payments, through a sale or refinance of real property, or escalating payments over time based on the circumstances of an individual’s financial situation for example. The plan must fit within the confines of the Section 1325 of the Bankruptcy Code to be confirmed by the Court, so it is important that a debtor fully disclose his or her financial situation to their attorney so a plan can be structured that is feasible while complying with the Bankruptcy Code.


If you are considering bankruptcy, it is important to contact an experienced bankruptcy attorney to guide you through the process and help you assess your options in light of your situation.  If you have questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.

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Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.


David E. Sklar

Prior to joining Scura, Wigfield, Heyer, Stevens & Cammarota, LLP, David Sklar graduated from Rutgers University-Newark School of Law with a J.D., Cum Laude. Mr. Sklar was the recipient of a Pro Bono Award and was honored by the New Jersey Bar Association for his commitment to the Street Law Program by being awarded the Street Law Prize.

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