Can I Keep My House If I File For Chapter 7 Bankruptcy?

by Kevin Gipson, New Orleans Bankruptcy Attorney

January 23, 2010

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One of the most common concerns that potential clients have when considering whether or not to file a Chapter 7 bankruptcy is will they be able to keep their house?

When you file for Chapter 7 bankruptcy, you can get rid of the amount of money you owe to his unsecured creditors.  This includes credit card debts, personal loans and medical bills.

You can also get rid of his secured debt.  A secured debt is one where a debtor gives a creditor an interest in the debtor’s property in exchange for the creditor lending money.  An example is a mortgage.

You’ve got the option of keeping the house if you’re current on the mortgage.

However, you can also give up the house if you’re behind on the mortgage.  This is known as surrendering the property.

Once a house is surrendered and the bankruptcy is discharged a creditor can sell the house to pay off the debt owed, but you’re no longer personally responsible for any shortfall.

As a result, even if the creditor cannot get the full amount owed for the mortgage, you’re not responsible for the deficiency.  You pay only for so long as you want to keep the house – and if you change you mind, you can hand back the keys and walk away from the mortgage without a second thought.  For many, it’s like a long-term insurance policy against an uncertain financial future.

The decision to keep a house in a Chapter 7 bankruptcy is one that should only be made after consultation with an experienced bankruptcy attorney since it may be necessary to sign an agreement to reaffirm the home loan to keep the house.  These types of agreements, known as reaffirmation agreements, result in the debtor agreeing to continue to be personally liable for the debt after the bankruptcy is completed.

Since a Chapter 7 bankruptcy can only be filed once every 8 years, the decision to reaffirm a debt can cause new financial problems if the debtor can no longer pay the mortgage once his Chapter 7 bankruptcy is over.

 

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I've been a consumer bankruptcy lawyer for nearly 25 years. Since that time I have helped many people resolve their financial problems. I have been practicing law since 1986 and I am licensed to practice in all state and federal courts in the State of Louisiana. Because I am a sole practitioner, you know that your debt matters are being handled by me personally. In addition to my work with consumers, I am also frequently asked to speak at local seminars on bankruptcy law. I am member of the following organizations: • Louisiana Bar Association • National Association of Consumer Bankruptcy Attorneys • Bankruptcy Law Network My office is located at: 3920 General DeGaulle Drive, New Orleans, LA 70114 Telephone: (504) 368-4101

Last modified: February 24, 2013