What Happens to Your Massachusetts Home When You File for Bankruptcy

 

Filing for bankruptcy can be stressful and confusing, particularly for homeowners unsure about what will happen to their property. In Massachusetts, understanding how your home is treated during bankruptcy is essential to making informed decisions. Bankruptcy laws, especially those related to your home, involve various factors, including the type of bankruptcy filed and the value of your home equity. Here's a breakdown of what happens to your home when you file for bankruptcy in Massachusetts.

 

Understanding the Types of Bankruptcy

Homeowners typically file two main types of personal bankruptcy: Chapter 7 and Chapter 13. These options have different impacts on your property, especially your home.

 

Chapter 7

Often called "liquidation bankruptcy," Chapter 7 involves selling off non-exempt assets to pay creditors. However, many homeowners can protect their primary residence through exemptions. If your home's equity falls within the allowable exemption limits, you may be able to keep your home. Otherwise, the trustee assigned to your case could sell your property to satisfy outstanding debts.

 

Chapter 13

This type of bankruptcy is often called a "reorganization" bankruptcy. Instead of selling assets, it allows individuals to establish a repayment plan to pay creditors over three to five years. For homeowners, Chapter 13 can be more favorable because it often enables you to keep your home as long as you continue making mortgage payments under the repayment plan.

 

The Homestead Exemption in Massachusetts

The most crucial factor in determining whether you can keep your home during bankruptcy is the Massachusetts Homestead Exemption. This legal provision helps protect the equity in your home from creditors. For homeowners filing for bankruptcy, this exemption can make a significant difference.

The automatic homestead exemption in Massachusetts protects up to $125,000 of your home's equity. If you file a homestead declaration with the Registry of Deeds, this protection increases to $500,000. This protection is especially critical in a Chapter 7 bankruptcy filing, where the trustee may consider selling your property to pay off debts if the equity exceeds the exemption limit.

In a Chapter 13 bankruptcy, the exemption is key in determining how much you must repay creditors. The more equity you have in your home, the more you may need to repay under the plan.

 

What happens to your equity?

Home equity refers to the value of your home minus any outstanding mortgage balance. During bankruptcy proceedings, the court looks at the equity in your home to determine how much can be protected by the homestead exemption.

If your equity is below the exemption limit, you may keep your home under Chapter 7 and Chapter 13. However, suppose your home equity exceeds the exemption limit. In that case, the trustee in a Chapter 7 bankruptcy might sell the property to pay creditors. In Chapter 13, excess equity could increase the amount you must repay throughout your repayment plan.

It's important to note that timing can also play a role. Suppose your home's value increases after you've filed for bankruptcy. In that case, it may not affect the outcome since the court typically looks at the home's value when filing.

 

The Importance of Consulting a Professional

Given the complexity of bankruptcy laws and the intricacies of how your home is treated, seeking professional advice is vital. Bankruptcy can offer a fresh start but comes with risks, especially in your home.

Consulting a Boston bankruptcy lawyer can provide personalized guidance based on your financial situation. Legal professionals can help you with the legal process, understand your rights under the homestead exemption, and protect your home from foreclosure or sale during bankruptcy proceedings.

 

For homeowners, taking the right steps from the beginning of the bankruptcy process can significantly impact the outcome. A lawyer with expertise in Massachusetts bankruptcy laws can ensure you have full information about your legal options and help protect your home and financial future.