You want to keep your home when you file for bankruptcy. This is an understandable desire and can be one of the main aims for the filer. Whether it is possible or not depends a great deal on your current situation regarding payments. Are you up to date with your home loan payments or have you missed some payments?
Chapter 7: filers should be up to date with their mortgage payments and have the ability to protect their home equity with an exemption.
Chapter 13: filers can have arrears with their payments and are able to catch up on the missing payments to keep the home.
Protecting Your Home Equity
Your first task should be to establish if you can protect all of your home equity when you file for bankruptcy. Exemptions are available in both Chapter 7 and Chapter 13 filings. Each state will have its own list of exemptions that are available. Fortunately, in Texas, the list of exemptions is quite generous, and you are in a better situation than many other states.
If you file Chapter 7 Bankruptcy and your homestead exemption covers all of your equity, the trustee will not sell your home. In Chapter 13 bankruptcy you can keep your home, but you will be required to repay your creditors an amount that equals the non-exempt equity. This repayment takes place during the course of your repayment plan.
The equity in your house is an asset in your bankruptcy. Bankruptcy law does, however, provide for exemptions that are required so you can maintain your household and continue employment. The value of these exemptions varies from state to state and where you live has a big impact on your hopes of keeping your home. The other factor is whether you file for Chapter 7 or Chapter 13 bankruptcy.
So looking more closely at “Can they take your house if you file bankruptcy, we can see how it is worked out in the following section.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy the actions taken with your property are as follows:
1. The bankruptcy trustee will sell your home.
2. He will settle the mortgage
3. He will then reimburse you the amount of the homestead exemption in your state
4. He will then use anything left over to pay off your other unsecured creditors, like credit cards, medical bills, and utilities.
Simply put the homestead exemption applies to the property where you live. In Texas, the debtor will in most cases qualify for a 100% exemption on this property. This generous exemption means that in Texas, very rarely do homeowners have to sell their property under Chapter 7 bankruptcy. There are some conditions attached to this exemption to stop people from playing the system, but a good bankruptcy lawyer will explain these technicalities.
Chapter 13 Bankruptcy
Your bankruptcy trustee in a Chapter 13 bankruptcy will not sell your home. You still receive the same exemptions, so should you opt for the state system that is 100% exempt. Normally the filer has to repay the value of the non-exempt portion to the creditors over the course of the repayment plan (lasting three to five years). Since there is a 100% exemption there is nothing to repay in Texas.
So we can see that in most cases in Texas in either Chapter 7 or Chapter 13, there is very little chance that a home will be sold by the trustee.
Texas Homestead Exemption Rules
There are slightly different rules for Rural and urban properties. You have to establish which category your property is in.
The Texas Bankruptcy Homestead Exemptions in rural areas are limited to 100 acres if a single adult. Where there is a family, then the limitation is placed at 200 acres. This acreage may be subdivided into single or multiple parcels. The exemption also covers fixed improvements on the property.
Definition Of Family
A family is classed as a group of people who live together as one single family. This group will have a “head of the family” who is obligated to care for and support at least one other member of the group. The other family members must have a dependence on the head of the family.
This family could perhaps consist of spouses, adult children, minor children, parents, or siblings. It can also include divorced parents, widows, and widowers. It is the financial dependency that figures most importantly.
In an urban setting, the Texas homestead exemption covers property up to 10 acres of property, withal the fixed improvements. There is no distinction in acreage for a single person or family. This acreage may be subdivided into single or multiple adjoining plots.
Establishing whether a property is urban or rural can obviously make a lot of difference. The definitions of an urban property are based on:
1. Is the property inside a development or subdivision? Is it inside the jurisdiction or physical boundaries of a municipality?
2. Is it under the jurisdiction or covered by police and fire protection?
3. Does it receive at least three of the following from a municipality?
d. Natural Gas
e. Storm Sewer
All three of the above sections must apply if the property is to be considered urban.
Mandatory Credit Counselling
Since 2005 it has been a requirement to receive credit counseling in the six months prior to filing for Chapter 7 bankruptcy. This counseling has to be with an agency that has received the approval of the United States Trustee Office. If you fail to undertake this counseling and file a certificate of completion with the court, then this will lead to your bankruptcy case being dismissed.
There are exceptions to this rule. The key exceptions are:
1. You need to file bankruptcy immediately or suffer major harm, and the agency could not provide a course that could be completed within seven days. This harm could be a sheriff’s sale or wage garnishment.
2. You are disabled, on service in active military duty in a combat zone.
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