One of the most common questions we hear concerning chapter 7 bankruptcy is; are you allowed to keep your house and car? The short answer is yes as long as you are current on your mortgage or car payments and you do not have a significant amount of nonexempt equity in your property. Nonexempt equity means equity in your property that is not protected by the use of California’s bankruptcy exemptions. If you are behind on your payments a chapter 13 bankruptcy may be better suited for your situation.
If you are underwater on your mortgage (meaning your house is worth less than what you owe on it) then you will probably be able to keep your house as long as you are current. The trustee has no interest in property they can’t sell for a profit to pay creditors.
If you do have some equity in your house it may be protected by the use of what’s called the “homestead exemption.” The amount of equity that can be protected varies depending how old you are, whether you are married and/or have children/dependents living in your home. These amounts can vary and it is best to contact a local bankruptcy lawyer to find out more information.
If you have a significant amount of nonexempt equity in your home or car the trustee may be able to sell the property to pay off your creditors. The chapter 7 trustee may be willing to sell the property back to you for a price, instead of taking the time and expense to sell the property at auction.
Your car loan pretty much works the same as your home loan. As long as you do not have too much equity in your vehicles you should be able to keep them. If you fall behind the lender can get permission from the judge to repossess the vehicle.
When you take out a loan on a house or car you do two things:
So when you take out the loan on a house or car it becomes a lien and this allows the lenders to foreclose or repossess on the property if they are not paid. When you file bankruptcy the promissory note part of the loan is discharged, but the lien is still there and allows the lender to take back the property if they are not paid, even though you filed bankruptcy. In other words, if you fall behind on your payments after bankruptcy you can still get foreclosed on or have your property repossessed.
Lenders will often ask you to reaffirm the debt. This may not always be the best option for you. An experienced bankruptcy lawyer can help with this.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy under the bankruptcy code.