Many Americans believe that if they file a Chapter 7 bankruptcy that they will automatically lose their home. It is true that in some cases, people lose their homes during the Chapter 7 bankruptcy process.
It is also true that you are more likely to lose your home if you file a Chapter 7 bankruptcy as compared to a Chapter 13. However, according to FindLaw, in the Chapter 7 process much depends upon the amount of equity that you have in your home.
What is equity?
Equity is the difference between the current market value of your home after subtracting any mortgages or home equity loans that you hold. It is very common for persons filing Chapter 7 bankruptcy to have very little or negative equity in their houses. If this is the case, then you will not need to sell your home in a Chapter 7 bankruptcy process.
Do you want to keep your home?
This may seem like a very silly question, but there are situations where individuals are better off losing their house compared to keeping it. You must carefully consider whether or not you can actually afford the mortgage on your property. In reality, bankruptcy presents a unique opportunity to “walk away” from a home with very few other consequences.
If you will be able to afford the mortgage on your home after the Chapter 7 bankruptcy process, then it is feasible for you to keep it. However, if you will not be able to make your house payments after filing bankruptcy, you are at risk for the bank foreclosing on your home. Chapter 7 bankruptcy does not automatically mean losing your house, but in some situations that is the best option.