Bankruptcy in California: Can You Keep Your Home?

Bankruptcy is often considered a fresh start for individuals facing overwhelming debt. However, one of the biggest concerns for many Californians contemplating bankruptcy is whether they can keep their home during the process. In California, the legal framework offers various protections that can help homeowners retain their property while navigating bankruptcy.

When filing for bankruptcy, individuals can choose between two primary types: Chapter 7 and Chapter 13. Each has distinct implications for homeownership.

Chapter 7 Bankruptcy:

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is often chosen by individuals with limited income who need to discharge unsecured debts, such as credit cards and medical bills. In California, there are specific exemptions that may allow you to keep your home. The California homestead exemption provides protection for a certain amount of equity in your primary residence. As of 2023, the exemption can be valued up to $600,000, depending on the circumstances surrounding your home.

If your home equity is less than the exempted amount, you can likely retain your home after bankruptcy. However, if the equity exceeds the exemption limit, the bankruptcy trustee may decide to sell the home to cover unpaid debts. To minimize the risk of losing your home, it’s crucial to assess your current mortgage and home equity before filing Chapter 7.

Chapter 13 Bankruptcy:

Chapter 13 bankruptcy is designed for individuals with a regular income who want to create a feasible repayment plan to pay back debts over time, typically three to five years. This type of bankruptcy offers more straightforward avenues for individuals wishing to keep their homes. Under Chapter 13, homeowners can propose a repayment plan that addresses past due mortgage payments while protecting the home from foreclosure.

Essentially, Chapter 13 allows you to catch up on missed mortgage payments over the duration of the repayment plan. As long as you adhere to the plan and continue making current payments, you can retain your home throughout the process.

Protective Measures:

In California, homeowners can take additional steps to safeguard their property during bankruptcy. Seeking the guidance of a qualified bankruptcy attorney is essential, as they can provide personalized advice tailored to your financial situation.

Another important aspect is understanding the significance of reaffirming your mortgage debt. This means you are agreeing to continue paying the mortgage post-bankruptcy, which can further help you save your home.

Conclusion:

While bankruptcy can be a daunting process, Californians facing financial difficulties can find peace of mind knowing that options exist to help keep their homes. Whether opting for Chapter 7 or Chapter 13, understanding the nuances of California’s bankruptcy laws and leveraging available exemptions are key. Always consider consulting a legal professional to navigate these complex waters effectively.