Many people dream of purchasing and owning their own house. However, they often don’t carefully consider the cash flow commitments required to keep the house running. Often individuals become cash-strapped from home ownership and don’t even realize it. Before filing for personal bankruptcy, a person must decide whether or not they can afford, from a cash flow perspective, to keep their house. If they decide they can afford to keep it, then the issue of whether or not a person can keep their house in bankruptcy all depends on how much equity exists in the house when they go bankrupt. Equity is calculated by subtracting the mortgage balance, outstanding property taxes, and any other liens from the value of the house. The value of the house must be confirmed by an independent professional hired by the Trustee.
If the house has little or no equity then a bankrupt can usually make arrangements with his or her financial institution to continue making mortgage payments and retain the house after filing for bankruptcy. Furthermore, a person could decide to not keep their house and return the keys to the secured creditor and have any shortfall in the mortgage released in their bankruptcy.
If the house has considerable equity then a Trustee must get that equity out of the house for the general benefit of creditors. One option would be for the bankrupt to purchase back their portion of the house equity. This option is often difficult to attain as a bankrupt usually does not have access to this amount of money. Another option would be for the Trustee to sell the house. The Trustee must ensure that there is equity after all selling costs have been accounted for.
The rules governing houses and bankruptcy are complicated, thus it is best to review all of your options regarding your specific situation by contacting a bankruptcy trustee.
Comments on this entry are closed.