One of the first questions people ask when they begin to explore their Denver bankruptcy options is, “Can I keep my house if I file bankruptcy in Colorado?” While this question cannot be answered without knowing the specifics of the situation, the answer is generally, “yes.”
A number of factors must be evaluated before determining whether it is possible – or wise – to keep your home after filing bankruptcy. The first thing a debtor will need to know is whether they are filing Chapter 7 Bankruptcy (liquidation) or Chapter 13 Bankruptcy (reorganization). In either case, most debtors are able to keep their home; however, it is important to know the differences between the two Chapters if your goal is to keep your home. Other important factors include: the amount of equity in your home, whether you have missed any payments, and whether the house is your primary residence.
Keeping your Home in a Chapter 7 Bankruptcy
A Chapter 7 Bankruptcy is a liquidation and any assets which are not protected will be liquidated in order to raise money for creditors. Colorado Bankruptcy law affords homeowners a $60,000 homestead exemption to protect the equity in their homes and $90,000 if you are 60 years of age or older. For example, if a debtor owes $250,000 on their home and it is valued at $300,000 they are left with $50,000 in equity. The debtor may exempt all $50,000 of equity, meaning the bankruptcy court will not be able to liquidate the house because all of the equity is protected by the homestead exemption. An important note is that this exemption only applies to the debtor’s primary residence and not to rental, vacation or investment properties.
When filing a Chapter 7 Bankruptcyin Denver, the most important step in keeping one’s home is making sure the monthly mortgage payments are kept current. Even if the equity in your home is protected by the homestead exemption, a mortgage company or lien holder can still foreclose on the home if a debtor is behind on their payments. Generally, mortgage companies do not initiate foreclosures until a number of payments have been missed, however, the only way to completely protect a home from foreclosure is to stay current on the payments.
Keeping your home in a Chapter 13 Bankruptcy
For a debtor who is behind on their mortgage payments and who would like to keep their home, a Chapter 13 Bankruptcy may be the best avenue for doing so. A Chapter 13 is not a liquidation, meaning the Court will not liquidate assets in order to raise money for creditors. In a Chapter 13, the Court will compare a debtor’s expenses and income to determine how much disposable income is available to repay creditors. That disposable income will be paid to the Court each month for a set period (generally 60 months) and that money is divided up and paid to creditors. If a debtor is in arrears on their mortgage, some of these monthly Chapter 13 payments can be used to catch up these arrearages. The debtor must also resume making their regular monthly payment in addition to their Chapter 13 payments. Thus, while it is possible to catch up on your mortgage payments in a Chapter 13, it is not always the best option because it may be impractical or impossible for a debtor to make their mortgage payment in addition to the amount that must be paid to the Bankruptcy Court each month.
Disclaimer: The information contained in this distribution is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Do not take legal action based on this content! Always contact a lawyer near you.