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Can You Keep Your Home and Car If You Declare Bankruptcy?

Family in car in front of house
Did you know that you may be able to keep your home and your car even if you declare bankruptcy? Declaring bankruptcy is intended to wipe out your debts (or restructure them), but it doesn't necessarily mean that you lose all of your assets. If you currently have a modest home and car, there may be ways that you can hold onto them — even while resetting the rest of your debts and working to improve your credit.

Keeping Your Home During a Bankruptcy

Understandably, it's even more difficult to pay off your debts if you're without a home. That's why there are many ways to keep your home during a bankruptcy proceeding, depending on the type of bankruptcy that you file.
Chapter 7
Chapter 7 bankruptcy liquidates the majority of your assets to pay off your debts. But if you don't have equity in your home, your home isn't an asset — selling your home wouldn't help. If you owe more to the bank than your home is valued at (or just slightly less), it's very likely that you're going to be able to keep your property. The amount of equity you can have in your home depends on the exemption amounts in your state, which an expert in bankruptcy law can advise you regarding.
Chapter 13
Chapter 13 bankruptcy operates more as a debt consolidation than a true bankruptcy proceeding — rather than liquidating your assets to pay off your debts, it instead puts you on a structured payment plan to pay off your debts over three to five years. Because of this, you can nearly always keep your home during a Chapter 13 bankruptcy.
If you have a home that is well beyond your means, it is possible that you will need to either foreclose on it or short-sell it in order to get your finances on track. But most people who have a relatively affordable home will be able to keep their property even during a bankruptcy.

Keeping Your Car During a Bankruptcy

Keeping your vehicle during a bankruptcy is similar to keeping your home; it depends on how much equity you have in your vehicle. Vehicles are more likely than homes to be underwater, and you can check the current value of your car using a resource such as the Kelley Blue Book. If you just purchased your car for $15,000, it may only be worth $11,000 now — which means you owe $4,000 more than it's worth.
As noted, Chapter 13 bankruptcy will generally let you keep your home and your car. The only exception is if you simply do not make enough money to pay off your current mortgage and vehicle loans under a debt restructuring program. Chapter 7 bankruptcy will have a specific allowance for personal property which varies by state but is often around $5,000. But that isn't the total value of the car, that's the equity of the car. If you currently owe $4,000 on a $9,000 vehicle, then you have $5,000 of equity in the vehicle and will likely be allowed to keep it. On the other hand, if you owe nothing on an $8,000 vehicle, you may be asked to liquidate it.
It's important to understand your rights during a bankruptcy. Though it's commonly believed that bankruptcy can be devastating, it's often one of the best ways to get yourself back on a firm financial foundation, and it's very possible to come out of a bankruptcy with both your home and your vehicle unscathed. To learn more about how a bankruptcy could benefit you, contact the experts at The Michelson Law Office - Bankruptcy.