Keeping a home in a Chapter 7 case

It may be possible to keep your Maryland home after filing for Chapter 7 bankruptcy. That depends on how much equity is in the property as well as your ability to remain current on mortgage, insurance and property tax payments.

You might be entitled to a homestead exemption

State and federal law may allow you to retain equity in your home even if you file for a liquidation bankruptcy. Federal law says that you can’t exempt more than $125,000 in equity if you purchased the home less than 40 months prior to filing. The court overseeing your case will be bound by state law as it was written over the two years prior to petitioning for protection from creditors.

Be sure to reaffirm the mortgage after your case is discharged

When your Chapter 7 case is discharged, you are no longer obligated to keep making mortgage payments. However, if you fail to do so, the lender retains the right to foreclose on the property. This is because the lender’s lien on the title does not go away even if the balance on the mortgage is forgiven. To keep your home, you must reaffirm to the lender that you plan on staying current on the mortgage. Furthermore, you must remain current on your home loan during the course of your bankruptcy proceeding.

Filing for Chapter 7 bankruptcy may be an effective way to eliminate unsecured debts in a relatively short period of time. In some cases, you may be able to do so without having to liquidate any of your property. An attorney may provide more insight into the homestead exemption or other exemptions that may be available in your case. Your attorney may also talk more about other potential benefits such as an automatic stay.