What Will Happen to My Home and Car If I File Bankruptcy? - test
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What Will Happen to My Home and Car If I File Bankruptcy?

What Will Happen to My Home and Car If I File Bankruptcy?

Mortgage

Mortgage (Photo credit: 401(K) 2013)

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt.  Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in a chapter 13 bankruptcy.

A house is protected by North Carolina’s homestead exemption.  Under North Carolina law, a debtor who owns a home can exempt up to $35,000 of a property that is his or her principal residence.  A husband and wife who jointly own the property can generally each claim $35,000, for $70,000 total.  Keep in mind that all that matters when calculating the exemption is the equity available.  For example, if a husband and wife own a $200,000 home that has a $150,000 mortgage against it, there is $50,000 of equity available.  Because the exemption is $70,000, their home is completely protected in bankruptcy.  There are also special exemptions for widows and widowers.

A debtor can exempt up to $3,500 of value in one car (the exemption cannot be spread across several vehicles).  Again, this exemption is against the equity.  A $10,000 car with $7,000 outstanding on a car loan is protected – the $3000 in remaining equity is exempt.

However, some of your creditors may have a “security interest” in your home, automobile, or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

In a chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use chapter 13 to catch up on back payments and get current on the loan.

There are also several ways that you can keep collateral or mortgaged property after you file a chapter 7 bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

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Jim White
Jim White
jwhite@ptwfirm.com

Jim White helps people and companies facing serious financial injury. He is a Board Certified Specialist in Business Bankruptcy as well as an experience litigation attorney who has successfully taken on banks, large financial institutions and other corporations in “David v. Goliath” cases.