Bankruptcy FAQ

Personal Home

Homestead Exemption 

Can I File Chapter 7 And Keep My House?

At least in Nevada, if you are the typical debtor, the answer is yes.

When Chapter 7 is filed, all of a debtor’s non-exempt assets are sold at auction, and the money received from the sale are given to creditors. However, a typical Nevada Bankruptcy filer should not worry about losing any of their property to the bankruptcy court because of exemptions. Exemptions allow you to keep the essential property, which will enable you to be better able to get your “Fresh Start” after your bankruptcy is finished. 

However, Chapter 7 also allows a trustee to sell your luxury property at auction with the proceeds from the sale given the creditors.  Additionally, a Chapter 7 bankruptcy filer will not be allowed to keep property that their state deems it would be unreasonable to keep.

For example, in most states, it is not reasonable to allow a debtor to keep a mansion with a $1,000,000 in equity, and you are only allowed to keep personal property that you need for day-to-day living.  For example, you don’t need a jet ski or an ATV to survive, which means that a chapter 7 bankruptcy filer may have to give their ATV or a ski boat to the bankruptcy trustee who will then sell the “unnecessary” property at auction.

The exemption amount varies from state to state. For example, Nevada is quite generous as it will allow you to keep the house that has up to $605,000 in equity. See NRS 21.090(l)  Other states are far less generous. I.E., Hawaii only enables you to keep your home if you have less than $20,000 to $30,000 in equity.

Interesting Fact- If you fulfill the legal requirements, Florida has an unlimited bankruptcy exemption for the home where you live.  OJ Simpson, who lost a $30,000,000 civil judgment against the family of Nicole Brown Simpson, moved to Florida to save him from having pay off that lawsuit.   

How Much Equity Can I Have In My Home And Still File Chapter 7?

If you filed a homestead exemption, the amount of equity you have for the home where you live would determine if you can keep that property after filing a Chapter 7 Bankruptcy.  Assuming that you lived in the state for the required time, the amount of equity that you are allowed to have in your home depends upon the state where you file bankruptcy. 

Some states are quite generous. For example, Nevada will enable you to keep a house up to $605,000 equity. Florida allows for an unlimited exemption provided you lived in Florida at least 40 months before filing bankruptcy.  On the other end, Hawaii only allows bankruptcy filers to keep a house from $20,00 to $30,000 in equity. Also, based on how expensive real estate is in California, their bankruptcy exemption is quite low. (It ranges from $75,000 to $175,000)

Can You Keep Your Rental Property In Chapter 7?

Under most circumstances, the answer would be most likely no. As state before, Chapter 7 allows you to keep essential property through bankruptcy exemptions. Examples of exemption would be that you are allowed to keep clothes and furniture, up to a certain amount, with equity.  Rental property is not considered a necessity, though. The only way you would be able to keep your rental is if your rental property had no equity or was underwater. You could also keep your rental if the Trustee decided that it was not worth their time and money to sell it.

Can Chapter 7 Stop Foreclosure?

No, Chapter 13 can only save your house. A Chapter 13, if you qualify, can allow you to get caught up on past-due mortgage payments between a three to five year period. 

But, Chapter 7, which is finished in three months, will not allow you to keep your house. By way of the automatic stay, Chapter 7 may temporarily stop the foreclosure until you are through with your bankruptcy. However, when you are still in bankruptcy, a mortgage holder could file a lawsuit to “Lift the Automatic Stay,” which would allow the mortgagee to proceed with your foreclosure.  

Can I Buy a House While In Chapter 13?

Assuming the Court approves it, YES, you can buy a home (where you are going to live) while you are in Chapter 13. The only likely reason the Court would disapprove of the new home purchase would be if buying it would result in the creditors receiving less money.  For example, the bankruptcy trustee and bankruptcy court would likely not allow you to buy a house, while you are in Chapter 13 if the new house you purchase results in you only being able to pay 80% of your creditors back over five years instead of 100% back that you were able to pay before purchasing your new house.

What is Reaffirming a Mortgage?

When you fill out the mortgage papers and buy your home, you are affirming the mortgage debt. In other words, you agree to pay a set amount, each month, to your mortgage career, and at the end of the payments, you will most likely own your home. Filing Chapter 7 allows you to get out of this contractual obligation. When you reaffirm your mortgage, you sign paperwork stating that you agree to be held liable if you default on the mortgage after your bankruptcy is finished.

To reaffirm your mortgage all you have to do is sign paperwork stating that you agree to be held liable if you default on the mortgage after your bankruptcy is finished.   The bankruptcy court has to approve the reaffirmation agreement, and it is typically approved. However, the Bankruptcy Court may not allow the reaffirmation if they feel that it could cause you undue hardship.

In Nevada, if your mortgage holder is not a credit union, as long as you keep making payments, signing a reaffirmation agreement may not be even necessary. Consequently, if you do not sign a reaffirmation agreement, you will not be liable if you default on your mortgage after your Chapter 7 bankruptcy is discharged. 

So, you are likely wondering why anyone would reaffirm their mortgage? 

In Nevada, as long as you keep on making payments, you should be allowed to keep your house without signing the reaffirmation agreement. Other than fraud, the only potential exception to this rule would be if your mortgage holder is a credit union.  The reason you would reaffirm your mortgage is that, if you do not reaffirm it, the creditor may not report your payments to the credit bureaus, which results in your credit score not improving. 

Can I Walk Away From My House After Bankruptcy?

The answer to this question depends upon if you signed a reaffirmation agreement. If you didn’t sign the reaffirmation, you can normally “walk away” from your mortgage without penalty. However, if you did sign the reaffirmation agreement, you are liable for its remaining balance, just as if you had never even filed for bankruptcy.