I am financing a house, can I file a Chapter 7 bankruptcy and keep my house?

Yes, in many cases an individual or couple can keep their mortgage and their house and file a Chapter 7 bankruptcy. Similar to reaffirming a car/truck in a Chapter 7 case, if you qualify, you can reaffirm your mortgage and keep your house.

Another issue with reaffirming your house is how much equity, if any, do you have in your house. In other words, how much is the payoff balance on your mortgage(s) versus the fair market value of your house in the current housing market?

This is a factor because if you are filing a Chapter 7 bankruptcy because in Alabama you can exempt up to $5,000 equity in real estate as an individual ($10,000 for a joint Chapter 7). Therefore if you have substantial equity in your home and you choose to file a Chapter 7 bankruptcy, the trustee could decide to put your house on the market to attempt to sell it while you are in bankruptcy and pay the proceeds to your creditors.

In this situation a Chapter 13 (repayment plan) bankruptcy could be a better option.

However, for many people that have a recent mortgage on their home, the recent downturn in the housing market has eliminated any equity they thought they had in their house. In these situations a person may be well under the exemption amount and if they meet the other requirements, should be able to reaffirm and keep their home.

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