Making the decision to file bankruptcy is a big first step in regaining control of your financial outlook. However, there are several myths that surround the bankruptcy process and it is important to differentiate fact from fiction.
Chapter 7 bankruptcy is commonly known as a liquidation bankruptcy. This means that the courts will liquidate your property to pay off your debt. However, this does not mean that you will lose your primary residence if you file Chapter 7. According to FindLaw, the equity in your house is what determines whether or not you keep it.
What is equity?
Legally speaking, equity is the difference between the market value of your home and how much you owe in mortgages or home equity loans. It is very common for individuals who file Chapter 7 bankruptcy to have either very little equity in their homes or even have negative equity. If this is the case, then the property is exempt from the Chapter 7 liquidation process, which means that you will get to hold onto the property.
What happens after Chapter 7?
Even if you are able to keep your home after going through Chapter 7, it is important to continue to make mortgage payments on the property. It is still possible to lose your home to foreclosure after filing Chapter 7 bankruptcy if you do not keep up with your payments.
Some people who file Chapter 7 end up willingly giving up their home since filing Chapter 7 gives beleaguered homeowners the chance to stop paying the mortgage with no additional consequences if payments are unattainable. In some cases, liquidating the property is a boon rather than a negative.
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