When it comes to big financial decisions, two that top the list are purchasing a home and filing for bankruptcy. Though both represent a fresh new start, they do so from entirely opposite ends of the scale: a home purchase assumes a mortgage and taking on debt while filing for bankruptcy occurs when debt has gotten so overwhelming that you need relief.

What happens when those two worlds collide is often the top question asked by those considering bankruptcy. If you’ve already assumed responsibility for making monthly payments on your home and now you can’t make the payments, will you lose your home? There are many elements that will determine the answer to this question, and much of it has to do with whether you’re filing for a Chapter 13 bankruptcy or a Chapter 7 bankruptcy.

There are many differences between Chapter 13 and Chapter 7 bankruptcies, and the best way to understand them is that while Chapter 13 will revise the terms of your debt to make your payments more manageable and allow you to keep your assets, Chapter 7 wipes out your debts but also has the potential for forcing you to get rid of your assets and use them to pay off as much of your debt as possible. This can include your house depending on whether it is considered exempt or nonexempt through the bankruptcy process.

Under a Chapter 13 bankruptcy, rather than face the possibility of losing your home, you will instead get a stay that will stop collection efforts – including foreclosure and repossession efforts – until you have created and gotten approval for a new plan for repayment of your loan, under Chapter 7 a decision will need to be made as to whether your home is exempt or nonexempt from the assets that need to be surrendered. It’s important to remember that even if your home is considered exempt and can be left out of the assets that you are forced to sacrifice,  your mortgage lender will still have a lien on your property, and is likely to enforce it if you don’t pay them what you owe.

In wiping away other debt, Chapter 7 bankruptcy often frees enough of your income to let you resume making payments on your home. The best way to navigate the often confusing implications of filing for bankruptcy is to discuss it with an experienced bankruptcy attorney. Contact us today to learn how we can help.