One of the most common questions I get from clients is if they can file bankruptcy and keep their houses. Because most people are very attached to their homes, it can be very difficult to make an objective decision. Chapter 13 bankruptcy allows debtors to reorganize debt and catch up on mortgage arrears. However, sometimes, the best decision is actually to lose your home in a Chapter 7 bankruptcy so you can get a new, debt-free start. Some of the things I look at when evaluating your financial situation and deciding if you should keep your house in a Georgia bankruptcy filing are:
1. Does your house have any equity? Equity is not an absolute requirement to keeping or losing a house. However, if you’re behind on your mortgage and your house is underwater, meaning you owe more money on it than it’s worth, giving up your house may make more sense. Now, if you are current on your mortgage payments and file a Chapter 7, then keeping your house is a more logical choice, even if it is underwater. On the other hand, if you have too much equity to protect the house, you may have to look at Chapter 13 to avoid liquidation of your house.
2. What percentage of your budget does your mortgage cost? Two huge factors I look at when evaluating a person’s financial situation for a potential bankruptcy filing are income and budget. A lot of times, the problem is simple. Some people do not make enough money to sustain payment of their mortgage. A good rule of thumb is if living in your house costs more than 25% to 33% of your take home pay, including first and second mortgages, property taxes, insurance, and homeowners association fees, than you may not be able to afford your house. If you are looking to file a Chapter 13 bankruptcy to catch up on mortgage arrears, then you will have to make the monthly house payments AND the catch up payment under the Chapter 13 case.