Most Americans fear that if they end up in bankruptcy, a big truck will come up and pick up all their belongings and they will end up homeless living in a cardboard box. I know this sounds extreme, but it’s the underlying current of what the creditors would like the debtors to believe. This whole idea of losing everything in a bankruptcy filing is completely not true. Technically, filing Chapter 7 bankruptcy can involve the liquidation of some of the debtor’s assets to pay the creditors and this could include the family home. In reality, most individuals filing for bankruptcy don’t have enough equity in their home for the bankruptcy trustee to take or they’d probably be selling their house to get out of debt. On another side note, in today’s down real estate market a bankruptcy trustee doesn’t want to spend a lot of time trying to liquidate assets unless they can be turned to cash quickly. So right now, even if there is a little bit of equity, the chances are slim that the house would be taken.
This does not also include the bankruptcy exemption for homesteading. The homestead exemption in a bankruptcy filing varies from state to state, but generally protects a liberal amount of equity. Many people file for bankruptcy with the idea to stop for closure on their home. A Chapter 7 bankruptcy will only stop foreclosure temporarily because the lender will immediately file a motion for relief from stay to proceed with the foreclosure. A Chapter 13 bankruptcy is better suited for an individual filing bankruptcy that is trying to stop foreclosure and keep the home. A Chapter 13 bankruptcy also shares the power of the automatic stay to stop collection activity against the debtor. Where a Chapter 13 really excels is allowing the debtor to come up with a feasible payment plan that will allow them to catch up on back payments as long as they can keep up with the current payments over a 3 to 5 year payment plan. A bankruptcy attorney should be used to get the most out of a Chapter 13 bankruptcy. Filing for bankruptcy has something for everyone that is suffering from extreme debt and is best served using the expertise of a bankruptcy attorney.