Bankruptcy Exemptions

• To protect property in Chapter 7 bankruptcy, a debtor may apply bankruptcy exemptions available to the filer. Exemptions are specific types and amounts of property protected under bankruptcy law. Many states, and the federal government, provide for a homestead exemption. This exemption applies directly to property ownership.
  
  

State vs Federal

• Several types of bankruptcy exemptions are available. The federal bankruptcy exemptions provide a homestead exemption of up to $20,200, as of 2010. A couple filing bankruptcy together may double this exemption value. Most states have a set of bankruptcy exemptions as well. Some states do not allow filers to apply federal exemptions, while others allow the filer to select between federal and state exemptions. Be sure to check with your attorney to determine what the most recent exemption values are.
  
  

Equity

• The value of equity in a home plays a role in whether the home will be protected under these bankruptcy exemptions. To calculate equity, determine the appraised value of a home and subtract any liens or mortgages against it. The remaining balance is equity. The equity value must be lower than the applied exemptions to protect the home from seizure by the bankruptcy court.
  
  

Foreclosure

• A bankruptcy filer facing foreclosure will receive an immediate automatic stay on the foreclosure process at the time of filing bankruptcy. To protect a home, the lender and borrower must come to an agreement to get the loan caught up. Bankruptcy does not stop foreclosure long term. If a mortgage modification, adjustment of terms or other solution is not available, the home may be lost to foreclosure.
  
  

Chapter 13

• Another option to protect a home is to file Chapter 13 bankruptcy instead of Chapter 7. In this form of bankruptcy, the homeowner maintains all assets, including the home, assuming he or she is up-to-date on mortgage payments. Chapter 13 allows filers to reorganize debt to make it easier to repay. While some debt does receive a discharge, the filer will pay some debt in full, during a three to five year repayment period. To file Chapter 13, individuals must show the ability to make these repayments.