Saturday, January 22, 2011

Do I lose my home automatically if I file Bankruptcy in Oregon?

Many homeowners fear that if they file chapter 7 or chapter 13 bankruptcy they will automatically lose their home.  The fact is that is is very rare for a home to be lost in a bankruptcy. If you are a homeowner, and want to keep your home and file bankruptcy, chances are you will be able to if you are able to maintain your mortgage payments.

In Chapter 7 some assets can be liquidated if they are not "exempt" or protected under law.  In Oregon, the equity in a home is exempt up to $40,000 for an individual and $50,000 for a couple (or, "joint" bankruptcy).  So, if the Trustee does sale your home they need to pay you your exemption amount after closing.  The truth is, you probably need quite a bit of equity more than the exemption amount because if a Trustee in chapter 7 liquidates your home, they need to pay for the cost of sale (around 5-8%), pay the debtor their exemption amount ($40,000 - $50,000) and have enough leftover to pay the creditors a meaningful amount.  Given the current housing market it is fairly rare for homeowners to have too much equity in their home to lose in Chapter 7.

If you are uncertain about your home value a good place to start is www.zillow.com.  This is a website that looks at comparable homes in your area that are on the market and have sold and tries to give an estimate of your home's value. Of course, this won't always be truly accurate, but it is a good place to start when trying to determine the value of your home.  Normally, it is fairly clear on whether the home is in danger of being liquidated in a Chapter 7. Many homes right now are "upside down" meaning that the value of the home is less that what is owed against the home.  However, if the home has equity that approaches the exemption amounts it is a good idea to get an appraisal on the home before filing the Chapter 7 bankruptcy.

If a home has too much equity and would be at risk of being liquidated in a Chapter 7, a homeowner can still get bankruptcy protection while keeping the home by filing Chapter 13 bankruptcy. Since Chapter 13 is not a liquidation bankruptcy, rather a reorganization, homes are not sold by the Chapter 13 Trustee.  There are several complicated issues to be aware of in Chapter 13 and it is best to discuss a potential Chapter 13 with a qualified attorney in your area.

For more Chapter 7 and Chapter 13 Bankruptcy information in Oregon and SW Washington visit www.pacificbankruptcy.com