Keeping Your Home and Car in Bankruptcy
If I file bankruptcy, will I be able to keep my home and car?
In many cases, the answer is YES.
My car – does it matter how much it is worth?
Yes. In Indiana, a person may keep up to $4,000 in all “personal” property. (Personal property is property other than real estate or mobile homes). This includes your cars. Usually the NADA / “book” value is used. But you may subtract any money you owe on the car. For example, if your car is worth $8000, but you owe $7000 against it, your “value” is only $1000.
Note that in joint (husband-wife) bankruptcy cases, the exemption is available to each spouse, so the total exemption is $8000.
What if I owe money on the car – what do I do?
In bankruptcy cases, as a general rule, the lender will keep its security interest (lien) against the car. In such cases, you have several options. These include:
- “Reaffirmation” – an agreement, filed with the court, that you will continue to owe the creditor the debt and make payments on the debt.
- “Redemption” – you make a payment of the car’s value to the lender (usually in a lump sum).
- Surrender of the car back to the lender (after which you will owe nothing), but you will no longer have the car.
- Negotiation of a new agreement with the creditor in order to keep the car.
My home – does it matter how much it is worth?
Again, yes. In Indiana, an individual may keep up to $7,500 “equity.” For a married couple, the amount is $15,000. The equity is the value of the property, minus any mortgages or liens. For example, if the home is worth $60,000, and the mortgage is $55,000, the equity is $5,000, and the home would be exempt. You thus would be able to keep your home.
This exemption applies both to residential real estate and to mobile homes.
How do I deal with the mortgage?
In a Chapter 7 case, one way you may keep the home is by “reaffirming”. This means you sign an agreement to continue paying your mortgage. Sometimes, the lender won’t make you reaffirm – you just keep paying the mortgage. If the lender is willing, mortgages can be re-negotiated. You may be able to get a better interest rate, and lower payments. There may be valid defenses. Your attorney will advise you on the best action.
What if I am behind on the mortgage?
In a Chapter 7, you can, of course, try to negotiate a repayment schedule with the lender. An alternative is a Chapter 13 reorganization. (Chapter 13 is another kind of bankruptcy, in which you make payment plans with your creditors). Your payment plan may include paying the mortgage arrearage (back-payments), including past-due property taxes. You must be able to afford both the plan payments, and your future regular monthly mortgage payments, in order to keep your home.
What if I own too much property?
If you own too much real estate or personal property to keep it all in bankruptcy, your options may include:
- Giving some of your property to the Bankruptcy Trustee;
- Paying the Trustee your excess equity over a period of time;
- Filing a Chapter 13 reorganization which, if approved, may allow you to keep all your property.
What if I give away (or sell for low value) property, and then I file bankruptcy?
Your bankruptcy may be dismissed, and in certain cases you may even be charged with fraud. The Trustee may sue the people you gave property to.
There are circumstances in which it is okay to give away property before filing bankruptcy, but you should first seek legal advice.
Are the laws different in other states?
Yes. The “exemption” laws are different. The dollar figures discussed here are for Indiana only. Other states have different kinds of exemption laws, and different amounts.
Last revised: 8-2003
LSC Code: 1010400
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