Homes in Chapter 7 Bankruptcy

July 22, 2013 | Category: Chapter 7, Mortgages

One of the most common questions asked by Atlanta, Georgia individuals considering whether to file a Chapter 7 “straight” bankruptcy is: “Do I have to include my house in my bankruptcy?” This question is generally asked by individuals who are current in their mortgage payments, and are concerned that by “including” their house, they will lose their home or otherwise be adversely affected by filing a bankruptcy.

An individual filing bankruptcy is required to list all of his or her assets and debts in the bankruptcy paperwork filed with the Court. This includes a debtor’s residence and any other real estate, and any mortgages or other loans for which the debtor’s real estate is collateral. A debtor must disclose the estimated value of all property and the amounts owing on any mortgages, and must provide the addresses of mortgage lenders so that each receives notice of the bankruptcy filing, even if the debtor is current on payments.

A popular, but inaccurate, myth is that an individual who files a Chapter 7 bankruptcy will automatically lose their house. A debtor can only lose his house in a Chapter 7 case in three circumstances. The first is that the debtor has decided to voluntarily surrender the property to his mortgage holders. The second is that the debtor is substantially past due on his mortgage payments, causing their mortgage lender to seek relief from the “automatic stay” and pursue foreclosure. The third is that the debtor’s home has equity beyond that which he is able to “exempt” and retain in a bankruptcy filing, resulting in the house being sold by the bankruptcy trustee and the proceeds used to repay the debtor’s creditors. In each of the two latter instances, careful pre-bankruptcy planning will prevent involuntary loss of the debtor’s house.

If a debtor’s mortgage payments are current and there is no non-exempt equity, the debtor’s ownership of a residence (and the mortgages on it) will generally pass through bankruptcy undisturbed (see here for information regarding second mortgages). Simply put, the debtor must continue to make his mortgage, tax, and insurance payments as he did before filing bankruptcy, and he will retain his interest in his home.

Since 1986, The Rothbloom Law Firm has served residents of Cobb, Fulton, Gwinnett, Paulding, Cherokee, DeKalb and all metro-Atlanta counties seeking relief from their business and personal debt. Our attorneys, Howard Rothbloom and Adam Herring, provide thoughtful counseling, careful planning and creative lawyering in bankruptcy cases filed under chapter 7 and chapter 13. Contact us today to discuss whether bankruptcy may be an option to relieve you of the burdens of business and consumer debt.