Can I Keep my Home if I File Bankruptcy?
If you own and want to keep your home, you must be current in your mortgage payments to file a Chapter 7 Bankruptcy. If you have had your mortgage modified and are current with the new payments, you are eligible to file a Chapter 7 Bankruptcy. However, you are limited in the amount of equity that you may have in your home. Each state has different limits.
In New York, the amount of equity that you are allowed depends on the country in which you live. If you live in any of the following countries, you are allowed $165,500 in equity: Richmond, Kings, Queens, New York, Bronx, Nassau, Suffolk, Westchester, Rockland and Putnam. If you live in any of the following countries, you are allowed $137,950in equity: Dutchess, Orange, Ulster, Columbia, Albany and Saratoga. If you live in any other county in New York State, you are allowed $82,775 in equity. These allowances apply whether your home is a house, condo, coop or mobile home.
These limits apply to your own share of the equity. For example, if you share the ownership of your home equally with another person, these limits apply only to your share of the equity. If the home is appraised at $800,000, your share of the equity would be $400,000. If there is a mortgage with a balance of $600,000 on the home, the equity would be $200,000, of which your share would be only $100,000. ($800,000 - $600,000 = $200,000 ÷ 2 = $100,000). If you and the other person are married, both of your names are on the deed, and you are filing a joint Chapter 7 Bankruptcy, you may double the amount of equity you are allowed to have in your home.
If you want to keep your home, and you are not current on your mortgage, you may be able to save your home by filing a Chapter 13 Bankruptcy. You are allowed 3 to 5 years to catch up on your overdue mortgage payments in a Chapter 13 Bankruptcy. While you are making payments under the Chapter 13 plan, you must also make your regular mortgage payments as they become due.
Chapter 13 Bankruptcy may also allow you to convert a second mortgage, which may be in the form of a home equity loan or a line of credit, into an unsecured loan. This means that the amount owed on the first mortgage must exceed the appraised value of the home. By doing so, under the right circumstances, you may be able to pay only pennies on the dollar on the second mortgage over the 3 to 5 years of the Chapter 13 payment plan. This is known as mortgage stripping or a mortgage cram down.
To be able to strip off the second mortgage, it must be totally unsecured.That means that the mount owed on the first mortgage must exceed the appraised value of the home. To pay less than 100% of the amount owed on the second mortgage, you must not be required to pay 100% in a Chapter 13 payment plan. The amount that you are required to pay in a Chapter 13 plan is determine by the Means Test and depends on the value of the assets that you have in excess of your allowed exemptions. To make these determinations, you should discuss in detail all of your information with an experienced bankruptcy attorney.