Can you be forced to sell your home if you declare bankruptcy?

Answer 1

Maybe but not normally. Generally speaking, you can keep your home during a Chapter 7 case so long as you "reaffirm" the debt to the mortgage company during the case. This means you contact the mortgage company and tell them you want a "reaffirmation agreement," then they will send you one and you sign it, they sign it, and you file it with the court. This reaffirmation agreement puts you back on the hook legally for the mortgage debt, but lets you keep your home. In other words, it allows the mortgage to pass through the bankruptcy unscathed. There are a couple of roadblocks to this though: (1) If you are not current on your mortgage payments, the mortgage company will usually not allow you to reaffirm the debt. So, generally people in Chapter 7 must be current on mortgage payments to be able to keep a home in a Chapter 7. (2) If you have too much equity in the home, the Bankruptcy Court may seek to sell the home. In other words, each State says how much equity in residential real estate a person who files bankruptcy in that State may protect. If you go over this amount, the Bankruptcy Court can sell the home to get that unprotected equity to give to your creditors. For example, in Indiana each person may protect $15,000.00 equity in residential real estate. So, if John files bankruptcy in Indiana and he owes $70,000 on his house and his house is worth $80,000, he is fine since he only has $10,000 in equity ($80,000 value minus $70,000 mortgage) and he is safe for up to $15,000. But, say John owes $70,000 on his house and it is worth $150,000. Now, John has $80,000 in equity ($150,000 value minus $70,000 mortgage) and he can only protect $15,000, so the Bankruptcy Court would sell the house, pay off the mortgage, give John his $15,000, and keep the remaining $65,000 to give to creditors. So, to keep a house in Chapter 7 be sure you are current on the mortgage and check and be sure you are within the amount of equity you are allowed to have in your State. Please note that nothing in this posting or in any other posting constitutes legal advice; this is simply my understanding of the facts and law, which I do not warrant, and I am not suggesting any course of action or inaction to any person. Speak to a lawyer for specific advice. If you have any questions, please refer to a lawyer in your jurisdiction. Thanks!