Imagine you are on the brink of filing for bankruptcy. You really want to file for Chapter 7, but you are worried that if you do make this choice that you will lose your home as a result. What should you do?
First things first: this assumption is a common line of thinking for people in a tough financial spot, but it is not always true. A Chapter 7 filing can protect you from having to forfeit your home during the process. In many cases, Chapter 13 bankruptcy better suits an individual seeking this type of protection (especially if the asset holds significant value); but a Chapter 7 can also prevent asset forfeiture too.
With that in mind, you should talk to an attorney before filing your Chapter 7 bankruptcy. Your attorney can advise you on the intricacies involved in your unique filing.
One thing to remember when it comes to asset forfeiture and your home: many trustees are utilizing shady (but legal) tactics to force a short sale of your home, or to bump your home out of its unprotected status. You need to be prepared for this when a trustee is appointed to your case; and you and your attorney can construct a plan of action to try and save your home.
One of the ways in which a trustee might try to wriggle your home away from its unprotected status is to “stall out” your Chapter 7 filing. Here’s how this works: you can declare your home as a protected asset up to a certain value. A bankruptcy filing usually takes many months (at least three) to complete. Over the course of your bankruptcy, your home value may rise. If the trustee thinks your home will cross the protected value limit set on your home, they may delay the completion of your bankruptcy. So discuss things with your lawyer and be ready to argue for your bankruptcy’s completion in a reasonable amount of time.
Source: Fox Business, “How Safe is My Home in Chapter 7 Bankruptcy?,” Justin Harelik, Aug. 21, 2013