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Can a person file for bankruptcy and keep the family home?

People in Vancouver who are considering filing a bankruptcy petition have many questions, but the most common by far is the future of the family's home. Will the bank take it away, or must it be sold to satisfy the claims of creditors? The answer depends in part on the type of bankruptcy petition that is filed and in part on the value of the homestead.

The first question that must be answered is whether the market value of the residence exceeds either the state or federal allowance for exempting real property from bankruptcy. Both federal and state law allows debtors to exempt a certain portion of the value of their homestead from the claims of creditors. The amounts of the exemptions vary, depending upon the financial status of the debtor and the value of the homestead.

If a debtor elects to file a petition under Chapter 7 of the bankruptcy code, the chances of saving the home if its value exceeds the exemption limits are slight. Moreover, Chapter 7 will eliminate the debt that was incurred to buy the house, but it will not cancel the lien of the mortgage. Even after the loan has been canceled, the bank that made the mortgage loan can still foreclose its lien and take title to the house.

The chances of retaining the homestead are better in a Chapter 13 proceeding because the debtor must provide a plan for repaying all debts, including any delinquencies in the mortgage loan, within five years after emerging from bankruptcy. A schedule for paying any delinquencies in the mortgage loan must be included in the plan of reorganization. Also, the debtor must commit to making all future mortgage payments on time.

The fate of the family home is often the most important consideration in choosing between filing a Chapter 7 petition or a Chapter 13 petition. Consulting an experienced bankruptcy attorney may be the best way to sort out the various options.

Source: FindLaw, "Facing Foreclosure? How Bankruptcy Can Help," accessed on Feb. 19, 2018