When faced with increasingly unmanageable debts, it is easy to feel like your financial future is spinning out of control. Bankruptcy can be an option for those who find themselves facing more debt than they can handle. One of the most common areas of concern for homeowners considering bankruptcy is the question of whether or not they will be able to keep their home during the process.
There are two different types of bankruptcy: Chapter 7 and Chapter 13. A Chapter 7 bankruptcy discharges your legal obligation to pay most unsecured debts, that is money that you owe without voluntarily pledging your property as collateral. Additionally, if you choose to walk away or surrender your home, the mortgage debts on that property will also be discharged. For those who wish to keep the property with secured debts like mortgages, Chapter 13 bankruptcy allows repayment of past due debts over time, preventing creditors from repossessing secured property like your home in order to collect on the debt.
When filing under Chapter 7, Missouri bankruptcy law allows certain types of property such as vehicles and household goods to be exempt from the debt liquidation process up to a particular amount. Homeowners can protect up to $15,000 of the equity in their home or up to $5,000 for a mobile home. This “Homestead Exemption” allows you to place the equity value of your home into a protected class of asset and remove it from the list of your personal resources that the bankruptcy trustee uses to pay off the creditors. In practice, this means that if you have less than $15,000 in equity, the Homestead Exemption protects your real property from seizure by the trustee and enables you to maintain ownership of your home.
If your house has more equity than the Homestead Exemption protects, there are still some other legal strategies that will enable you to keep your home through a bankruptcy proceeding, including negotiating a reaffirmation of the debt, where the debtor remains liable and pays all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the home as long as the debtor continues paying the debt.
Understanding the Homestead Exemption is not straightforward, and there are multiple exceptions to the rules that require consultation with an experienced Kansas City bankruptcy attorney to ensure that you take full advantage of the protections the law allows. Contact one of our Kansas City bankruptcy lawyers today for a detailed assessment of your financial situation, and to see if the Missouri Homestead Exemption applies to you.