Can you lose your home if you file Chapter 7 bankruptcy liquidation? Not necessarily. Although, it is possible if you don’t income qualify.
As of 2005, bankruptcy laws were changed to calculate your monthly income against the median income for households living in your same state and same size of your family. The bottom line….your disposable income must be less than or equal to the median income in order to file a Chapter 7 bankruptcy liquidation.
The Means Test
The means test is calculated by subtracting your unsecured and non-priority debts and certain allowed expenses from your monthly income. If the remaining disposable income is below your states median income, then you will qualify to file a Chapter 7.
The means test is not intended to financially strip the debtor of all assets, because it permits federal/state exempt assets (see FAQ’s Chapter 7 Answers) to remain after the bankruptcy.
Your Home is a Secured Debt
Even though your home is a secured debt, filing a chapter 7 bankruptcy liquidation will not eliminate the rights to collect on a collateral debt secured by your lender. However, you can coerce your lender to take payments over a certain period of time while you are still in the bankruptcy process. A reaffirmation agreement would have to be signed to ensure the lender that payments would continue monthly payments to keep the property.
Often times, lenders propose a 3-6 month trial payment to evaluate the performance of the debtor before agreeing to a final loan modification.
The best bankruptcy solution for any homeowner that wants to retain their home would be the Chapter 13 Reorganization plan. Also, bankruptcy is not the only way out, see my other suggestions 6 steps to a successful loan modification.
Be sure to contact a competent local bankruptcy attorney that will consult and is qualified to perform a bankruptcy liquidation analysis to determine how to keep your home. .