Today's blog will kick off a series of posts about things homeowners should be aware of when considering bankruptcy. If you own a home I don't need to tell you how important it is to you and your family's well-being. Filing for bankruptcy can be frightening since it can sometimes result in the seizure and sale of your home. This series of blog posts on the intersection of bankruptcy and home ownership is meant to put your mind at ease, but also to point out the potential pitfalls for homeowners filing for bankruptcy. It's important to note from the outset that Chapter 7 bankruptcy might not be the best vehicle for debt relief if you own a home. This is because bankruptcy is not a one-size-fits-all phenomenon. Your income, household size, property holdings, and amount of home equity all play a part in determining the best approach for dealing with your debt. In order to analyze the dangers facing homeowners in bankruptcy we must first discuss exemptions. California, like every other state, has its own exemption system which sets forth which property is exempt from seizure and sale in the contexts of bankruptcy and legal judgments. For homeowners the crucial exemption is the homestead exemption which protects a set amount of home equity. Most states protect home equity up to a certain dollar amount, while a few states base their homestead exemption on acreage. The most important thing to realize is that you risk losing your home if you have non-exempt home equity. In other words, your home will be in jeopardy if your home equity exceeds the dollar amount of your state's homestead exemption. Another important thing to keep in mind is that a Chapter 7 bankruptcy won't ultimately prevent a foreclosure. However, Chapter 7 can delay a foreclosure proceeding through the operation of the automatic stay. The automatic stay is a court order which freezes the status quo once your bankruptcy case is filed. The court issues this order to ensure an orderly resolution of your case. So during the pendency of your case (usually about three months for a Chapter 7 case) your foreclosure will be forestalled. However, after your case is resolved your lender will be free to re-initiate foreclosure proceedings. This leads us to the last important thing to keep in mind: Even if you've filed for bankruptcy, if you wish to keep your home you must continue to make your monthly mortgage payments. If you've missed payments you'll have to get current to prevent a foreclosure of your property. While Chapter 7 bankruptcy won't ultimately prevent a foreclosure (only you can do this, by keeping current on your mortgage payments), Chapter 13 offers debtors alternatives that are unavailable to people filing under Chapter 7. We'll look at the advantages of Chapter 13 in terms of saving your home in upcoming posts in this series. In sum, it's possible to file for Chapter 7 and keep your home, but whether you'll be able to do so will depend on the amount of equity your have in your home and whether this amount is covered by your state's homestead exemption.
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