What Happens to My Home if I File Bankruptcy?
Home is where the heart is. There is no place like home. Home sweet home.
Home is more than a roof and walls. Home is a place of comfort and security. Home is filled with memories and milestones. All of that can be in jeopardy if you find yourself in financial straits.
At Scaringi Law, our attorneys have experience in helping clients protect their homes, even when filing for bankruptcy.
Homestead Exemption in Pennsylvania
Exemptions in bankruptcy cases allow individuals to meet a basic standard of living. Each state can have laws that determine what value can be exempted in a variety of asset categories. Exempted property cannot be sold to pay off debtors.
Some states offer additional homestead protection above what federal law provides. Pennsylvania does not. The Keystone State uses the federal home exemption amount of $25,150 if you are single, $50,300 if you are married.
There are two forms, or chapters, of consumer bankruptcy. Each bankruptcy chapter addresses homes differently.
Chapter 7’s Impact on Your Home
Chapter 7 bankruptcy allows for non-exempted property to be sold to satisfy debts.
If the equity in your home is below the exemption threshold ($25,150 or $50,300), your home will not be sold. There’s no incentive to sell the home because there is no equity that can be distributed to your creditors.
If your equity is above the threshold, your home can be sold. The profit will be used to pay credit cards and other unsecured debt. You’ll receive the value of the homestead exemption.
Pennsylvania is one of about 25 states that recognize tenancy by the entirety. This designation offers another protection for the home of a married couple. If the house is owned as tenants by the entirety, debts owed by one spouse cannot be paid by liquidating the home. Only joint debts can be used as grounds to sell the house in a Chapter 7 bankruptcy.
Chapter 13’s Impact on Your Home
Chapter 13 bankruptcy offers another way to hold on to your home and other valuables. Chapter 7 is a means to erase, or discharge, unsecured debts for those who qualify. In Chapter 13, debt is restructured, not erased. Chapter 13 is appropriate for anyone who has too much income to qualify for Chapter 7 or has non-exempted assets (like a home) that they want to keep. Chapter 13 requires debtors to make monthly payments for three to five years.
The debt restructuring enables you to make smaller payments to your creditors, leaving you more each month in your bank account to make more significant progress on your non-dischargeable debt. You still have your house, your car, and other assets as long as you follow the court-ordered payment schedule. Once you successfully complete the payment plan, the balance of your unsecured debt is discharged.
Bankruptcy’s Impact on Foreclosure
Filing bankruptcy can temporarily delay foreclosure. Bankruptcy does not offer a permanent mechanism to stop foreclosure. Even if your home qualifies for exemption in bankruptcy, you can still lose the house through the foreclosure process.
Bankruptcy’s Impact on Rental Homes & Apartments
If you are renting, filing for bankruptcy can place a temporary stay on eviction proceedings. The landlord can ask for the automatic stay to be lifted so they can move forward with the eviction process. While you can be evicted from your rental during bankruptcy, you will not be harassed by your landlord for back rent. Back rent can be discharged.
If you are still living in the property, be prepared to pay rent after the bankruptcy filing. Rent due after filing is considered a post-petition obligation and not eligible for discharge.
Find Out if Bankruptcy Is Right for You
When you are being crushed by overwhelming debt, know that you have options. Scaringi Law is committed to helping Pennsylvanians find new financial footing. By assessing your situation, we can determine whether Chapter 7 or Chapter 13 is a viable answer for you to get renewed financial footing. Another outcome can be that a debt relief solution best fits your circumstances.
The first step in understanding your options is consulting with one of our experienced attorneys. Call (717) 775-7195 to schedule. Your initial consultation is free.