Will I lose my home if I file for bankruptcy?

One of my clients’ major concerns in a consumer bankruptcy is the thought of losing the family home. Although that is possible in some cases, loss of the home is not very common.

If the debtor in a Chapter 7 liquidation bankruptcy is behind on his or her mortgage payments, the home could be lost. In such cases, the mortgage lender usually asks the bankruptcy court for permission to institute foreclosure proceedings despite the pending bankruptcy. When a debtor is current on his or her mortgage payments, whether the debtor will lose his or her house depends on how much equity the debtor has in the property and whether that equity is exempt under state law or federal bankruptcy law. If the amount of the debts owed on the home is less than the home’s market value, the debtor could lose the house unless the applicable exemption entitles the debtor to retain most of the equity.

In a Chapter 13 proceeding, however, even if the debtor is behind on mortgage payments, if the Chapter 13 plan includes paying back any missed mortgage payments and the mortgage is otherwise current, the debtor should not lose his or her home. If the debtor is current on his or her payments, the home will not be lost if the debtor continues to make payments when due.

If the debtor is a renter rather than a homeowner, the law is complex and the advice of an attorney important. Under most circumstances, if the landlord wins the right to evict the debtor-tenant before the bankruptcy is filed, the automatic stay will not stop the eviction proceedings. An eviction may also survive the automatic stay if the tenant is endangering the property or using illegal substances on the premises. However, these provisions may apply differently to those with public-housing leases.

Usually a residential lease can be “assumed” in bankruptcy and the debtor-tenant can continue to live there and pay rent according to the lease terms, but certain deadlines may have to be met for the lease not to be considered rejected.