For most bankruptcy filers, one of the important things they work towards is keeping their home. While bankruptcy can liquidate assets, there are ways to protect a home, as long as certain steps are taken with care.
Protecting Home Equity in Bankruptcy
In Arkansas, the state homestead exemption is available only to those married or to heads of households. Though it can protect most or all of the value of most homesteads (urban homesteads on a quarter-acre lot or less, or rural homesteads on up to eighty acres or less, without regard to value), the use of the Arkansas state exemption rather than the federal bankruptcy exemption leaves those filers who choose to use it with only a few hundred dollars of exemptions remaining for the entirety of their remaining property (household goods, electronics, jewelry, sporting goods, firearms, financial accounts, vehicles, etc.).
Because most people who have equity in their homes also have other property that they would like to protect, it is important to evaluate their equity in all of their property together rather than just the home by itself. Filing a Chapter 7 using Arkansas state homestead exemptions could result in a home being protected by the exemptions, but the Chapter 7 trustee selling everything else except for the filer’s clothing and $500.00 worth of exempt personal property, and the Chapter 7 trustee using the proceeds of that sale to pay unsecured creditors.
If no feasible way to protect all of the equity in the homestead and personal property exists, then the best option should be to choose whichever exemption scheme (Arkansas state exemptions or federal exemptions) leaves the smallest amount of assets unprotected and then file a Chapter 13 bankruptcy. In Chapter 13 bankruptcy, the trustee does not have the power to sell any assets. Instead, you can propose to pay in your plan, over a 3-5 year period, an amount to your creditors that they would have received had the Chapter 7 trustee sold all of the property and paid that money to creditors himself.
How to Keep a Home In Chapter 7 Bankruptcy
You’ll likely be able to keep your home if you’re current on your payments, can protect the equity with an exemption (likely federal), and demonstrate you can remain current on your home payments until they’re paid off.
How to Keep a Home In Chapter 13 Bankruptcy
If you have multiple mortgages and/or are past-due on payments, a Chapter 13 plan can offer the chance to pay your creditors over 3-5 years. In addition to making your regular monthly mortgage payments, you may pay an amount each month so that the amount you are delinquent on payments can be cured or caught up over the 3-5 year plan.
You can also use Chapter 13 to get rid of junior liens through a process only if your property is now worth less than the balance of your primary loan.
If you’re looking to keep your home through a Chapter 7 or Chapter 13 bankruptcy, you’re certainly going to want to enlist the help of a qualified bankruptcy attorney. In the Little Rock area, dozens of clients have counted on the experience of Natural State Law, PLLC to protect their assets and offer trusted guidance through the bankruptcy process. Call (501) 916-2878 today to learn more and schedule a free consultation.