When you file for bankruptcy, the court considers all your assets (whether you own them outright or were paying them off). Depending on the type of bankruptcy you file for, you might be required to sell the asset and use the funds to pay your creditors, keep the asset and pay according to a pre-determined plan or use the homestead exemption in The Woodlands, TX.
What is the homestead exemption?
If you have enough equity in your home—that is, it’s worth more than what’s left on the mortgage—you may be able to use the homestead exemption to keep your home. Depending on the type of bankruptcy you file, this will have different financial and legal ramifications. The idea behind the exemption is that you need to retain enough property to have a home and everything you need for employment. Otherwise, you won’t get the fresh start that bankruptcy promises; you’d just be further in debt, with no way of working.
In Chapter 7 bankruptcy, you’re required to sell all of your non-exempt assets in order to pay off your creditors. In many cases, that can include your home. However, if the homestead exemption in your state covers all the equity currently in your home and you pay your monthly payments, you’ll be able to keep it. If the equity exceeds the exemption, you’ll be required to sell. The trustee will refund you the amount of the homestead exemption and use the remaining cash to help pay off your creditors.
In Chapter 13 bankruptcy, you can keep your home, provided you keep up with your monthly mortgage payments as well as the bankruptcy monthly plan payments. However, you’ll need to pay whatever the non-exempt equity is within your bankruptcy repayment plan. This can be an issue if you have a lot of non-exempt equity in your home—you’ll need to be realistic about what you can afford to pay each month, and if hanging onto your home is worth the ultimate cost.
How do I know if I should use the homestead exemption?
If you’re considering using the Chapter 7 or Chapter 13 homestead exemptions in The Woodlands, TX, consult with an attorney. Your individual circumstances may make it more prudent to file for one type of bankruptcy over another, and the best way to examine your options is to talk to an expert.
Ultimately, you should walk into a bankruptcy proceeding knowing there’s a fair to strong chance that you could lose your home—but when you have skilled legal advice, it’s easier to determine what the best course of action might be. Remember that the goal of bankruptcy is not just to free you from oppressive debt, but to compensate your creditors as much as possible. Sometimes that does mean selling your home.
For more information on the homestead exemption in The Woodlands, TX, contact James R. Jones, Attorney at Law. We’ve been handling bankruptcy cases in Texas for over 25 years, and look forward to discussing the particulars of your situation.