The amount of equity you can have in your home and still file for bankruptcy depends on the type of bankruptcy you file and the exemptions you claim.
Under the bankruptcy code, there is no limit on the amount of equity that a debtor can have in their home. However, if the value of your home exceeds the amount of your mortgage, any excess equity may be subject to asset liquidation by the trustee overseeing your case.
Bankruptcy is designed to give debtors a fresh start, not to help them keep their non-essential assets. So, if you have significant equity in your home, you may want to consider filing for Chapter 13 bankruptcy instead.
Table of Contents
• What is Chapter 7 Bankruptcy
• What Is The Definition Of Equity In A Home
• Disadvantages of Filing Chapter 7 Bankruptcy
• Chapter 7 Qualification
• Chapter 13 Qualification
• If I File Bankruptcy Can I Keep My House
• Documents Needed To File Chapter 7
• Chapter 13 Bankruptcy Colorado
• Bankruptcy Exemption Colorado
• Can I Sell My House While In Chapter 7
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a type of bankruptcy that allows debtors to discharge their unsecured debts, such as credit card bills and medical bills.
In a Chapter 7 bankruptcy, the debtor’s assets are liquidated and used to pay off creditors. However, certain types of property, such as a primary residence, are exempt from liquidation.
Chapter 7 bankruptcy is known as “liquidation bankruptcy” because it involves the sale of your assets to repay your creditors.
What Is The Definition Of Equity In A Home?
Equity is the portion of your home’s value that you own outright. It’s the difference between what your home is worth and how much you still owe on your mortgage. Factors include:
- The value of your home: The first step is to determine the fair market value of your property.
- The amount of your mortgage: The second step is to subtract the outstanding balance of your mortgage from the value of your home.
- The state homestead exemption: In some states, debtors are allowed to keep a certain amount of equity in their home regardless of its value.
What Are The Disadvantages of Filing Chapter 7 Bankruptcy?
It will stay on your credit report for up to 10 years. Additionally, it can be difficult to obtain new lines of credit after filing for Chapter 7 bankruptcy. But if your state’s homestead exemption is less than the equity you have in your home, the trustee overseeing your case could choose to sell your home and use the proceeds to pay off your creditors.
Chapter 7 Qualification
To qualify for Chapter 7 bankruptcy, you must pass the “means test.” The means test is a calculation that determines whether you have the ability to repay your debts. If your income is below the median income for your state, you will automatically qualify for Chapter 7 bankruptcy.
If your income is above the median income, you will need to complete a detailed analysis of your expenses to see if you can still qualify. The means test takes into account factors such as your housing costs, transportation costs, and food expenses.
Chapter 13 Qualification
To qualify for Chapter 13 bankruptcy, you must have a regular source of income and your unsecured debt must be less than $394,725. You must also have secured debt of less than $1,184,200.
If you don’t qualify for Chapter 7 or Chapter 13 bankruptcy, you may still be able to file for Chapter 11 bankruptcy.
Chapter 11 bankruptcy is typically used by businesses, but individuals can also file. To qualify, you must have a regular source of income and your unsecured debt must be less than $394,725. You must also have secured debt of less than $1,184,200.
Chapter 7 bankruptcy usually takes about four to six months to complete. Chapter 13 bankruptcy usually takes three to five years to complete.
If I File Bankruptcy Can I Keep My House
While it is possible to keep your home in a Chapter 7 bankruptcy, it is not guaranteed. It’s important to note that even if you are able to keep your home in a Chapter 7 bankruptcy, you will still be responsible for making your mortgage payments. If you fall behind on your payments, you could face foreclosure.
One option to keep your house during bankruptcy is to file for Chapter 13 bankruptcy. You will be able to reorganize your debts and create a repayment plan. This repayment plan will allow you to make payments on your mortgage over the course of three to five years.
Another option is to negotiate with your lender. If you’re facing foreclosure, you may be able to work out a loan modification or forbearance agreement with your lender. This could help you catch up on missed payments and avoid foreclosure.
Documents Needed To File Chapter 7 Bankruptcy
To file for Chapter 7 bankruptcy, you will need to gather all of the necessary paperwork. This includes:
- financial statements
- tax returns
- list of your creditors
Chapter 13 Bankruptcy Colorado
Chapter 13 bankruptcy is known as “reorganization bankruptcy” because it allows you to repay your debts over time. It enables individuals with a regular income to develop a plan to repay all or part of their debts. During this time, creditors are prohibited from starting or continuing collection efforts.
To complete the means test, you must first calculate your “current monthly income” (CMI). Current monthly income is your average monthly income from all sources that are reasonably expected to continue during the five-year period following the date of your bankruptcy filing. It includes:
- Wages, salaries, tips, and other commissions
- Net income from self-employment
- Ongoing payments received from Social Security, unemployment compensation, disability benefits, alimony, child support, pension, and retirement income
- Certain payments made by someone else on your behalf (such as rent or mortgage payments)
Bankruptcy Exemption Colorado
Colorado has its own set of bankruptcy exemptions that you can use to protect your property when you file for bankruptcy. These exemptions are different from the federal bankruptcy exemptions.
Some of the most common bankruptcy exemptions in Colorado include:
- Homestead exemption: You can exempt up to $60,000 of equity in your home or other property used as your primary residence.
- Vehicle exemption: You can exempt up to $5,000 of equity in your car or other vehicles.
- Personal property exemption: You can exempt up to $3,000 of equity in your personal belongings, such as furniture, clothing, and appliances.
- Retirement account exemption: You can exempt your entire 401(k), IRA, or another retirement account.
- Wildcard exemption: You can exempt up to $1,500 of equity in any property, including cash.
- Colorado also has a “head of household” exemption that allows you to exempt up to $3,000 of additional equity if you are the head of a household with dependents.
To claim an exemption, you must list the exempt property on your bankruptcy schedule and file the appropriate paperwork with the court.
Can I Sell My House While In Chapter 7
You can sell your house during bankruptcy, but you will need to get court approval first. The proceeds from the sale will be used to pay off your creditors. Any remaining equity will be protected by your homestead exemption.
But in chapter 13, you might be able to sell your house without getting court approval. You will need to use the proceeds from the sale to pay off your creditors and the bankruptcy trustee. Any remaining equity will be protected by your homestead exemption.
If you’re facing foreclosure, you may be able to sell your home to a Colorado Cash Buyer. We buy homes for cash. We buy houses in any condition or any amount of equity you have in it. Contact us now for a No-Obligation Offer.