The two most common bankruptcy options are: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Many individuals worry about filing bankruptcy for fear that they will lose their house. Others, who have learned they don’t have to lose their house when they file for bankruptcy, still think that they have to limit their options to a Chapter 13 bankruptcy. They think that owning a home leaves them ineligible to file for Chapter 7 bankruptcy. Are homeowners ineligible for Chapter 7 bankruptcy? No, homeowners are not ineligible for Chapter 7 bankruptcy, but this IS a common misconception.
The vast majority of homeowners actually file Chapter 7 bankruptcy.
Chapter 7 Bankruptcy Basics: Known as the fresh start bankruptcy, the Chapter 7 bankruptcy can wipe out all or most of the petitioner’s debt while allowing them to keep their home, vehicle/s, retirement money and personal property. While Chapter 7 provides a discharge of debt (meaning you don’t pay back your creditors) your home equity is taken into consideration when determining eligibility.
Chapter 13 Bankruptcy Basics: Chapter 13 bankruptcy is a reorganization of some or all of the filer’s debts allowing the petitioner to pay it back over a specified time period (between 3 and 5 years). This can be particularly useful in certain situations. For instance, in cases where an individual has fallen behind on mortgage or property tax payments and their lender or the county property tax assessor requires that they bring the balance current immediately, the Chapter 13 can remedy the situation by providing protection from foreclosure while allowing the homeowner to catch up on delinquent balances over a longer period of time.