For most bankruptcy filers, one of the most important assets they want to keep is their home. While bankruptcy may result in the liquidation of some assets, there are ways to protect a home, as long as specific steps are taken with care.
Protecting Home Equity in a 2021 Bankruptcy
In Arkansas, the state homestead exemption is only available to those who are married or head of household. Though it can protect most or all of the value of most homesteads (with some restrictions: urban homesteads are limited to a quarter-acre lot, and rural homesteads are limited to eighty acres or less), the use of Arkansas state exemptions rather than federal exemptions leaves those filers who choose to use it with only a few hundred dollars of exemptions to cover the entirety of their remaining non-homestead 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 case using Arkansas exemptions to protect the homestead could result in the protection of the home itself, but the Chapter 7 trustee selling all but $500.00 worth of the filer’s personal property (and clothing). The Chapter 7 trustee would use the proceeds of this 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 lowest total value of assets unprotected and then file a Chapter 13 bankruptcy. In a Chapter 13 case, the trustee can not sell any property; instead, the filer must pay the value of any non-exempt property into the plan so that the trustee may pay that money out to unsecured creditors, ensuring that the unsecured creditors receive what they would have received had the case been filed as a Chapter 7 bankruptcy.
How to Keep a Home in Chapter 7 Bankruptcy in 2021
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 in 2021
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. Your outstanding mortgage debt could be treated as separate debt and added to your overall repayment plan. This method only works if you can prove you have sufficient income that will last for the duration of your repayment plan.
You can also use Chapter 13 to get rid of junior liens such as second or third mortgages through a process known as “lien-stripping,” but 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.