Our Indiana clients frequently ask the same questions about Chapter 7: “Will I lose my House?” The answer to this is usually “NO.” You will not lose your house usually if you file for Chapter 7. This is because your residence, to a certain degree in Indiana, is protected by Indiana’s bankruptcy exemptions. Let’s discuss why your home is usually protected in an Indiana Chapter 7 and the situations in which it is not protected.
Indiana’s Residential Real Estate Exemption Frequently Prevents You From Losing Your Home in Chapter 7
In Indiana, you are allotted an residential real estate exemption of $19,300 per person (as of March 1, 2016). If you and your spouse are filing together and are both on the deed to the house, your exemption doubles to $38,600. This “exemption” simply means that you can have up to approximately $20,000 of equity per person that is fully protected when you file Chapter 7 in Indiana. You will not usually lose your house in Indiana if you have less (or similar) equity to this amount.
Beyond the Indiana real estate exemption, you can also keep your house usually in Indiana because most people who file for Chapter 7 have a mortgage. If you have a mortgage on your residence, you also get to subtract the total mortgage balance from how much your home is worth. As an example, pretend you have a home worth $95,000. Then, you could subtract your $80,000 mortgage (example only) and your $19,300 exemption. In such a case, your home would likely be fully protected when you file Chapter 7 in Indiana.
Some Situations in Indiana Where Your Home is Not Protected in Chapter 7
Although our office encounters it with much less frequency, some situations come up from time to time where Chapter 7 does not fully protect your home in Indiana. Too much equity or owning a home paid-in-full: these are the most common situations where you could lose your house if you filed Chapter 7. Usually, however, we can still frequently find a solution that will let you keep your house. You can frequently still keep your house in these situations by either settling with the Bankruptcy Trustee or filing Chapter 13.
Other situations can develop in Indiana (although extremely rare) where you could lose your house in Chapter 7. These situations are rare – being on someone else’s deed, having real estate where you no longer live, having a home gifted to you – these are just to name a few that we have encountered over the years. It is absolutely critical that you seek the counsel of a bankruptcy attorney when you plan for Chapter 7. Getting a consultation with an Indiana bankruptcy attorney should be your first step. This can help eliminate any concern about your home (or other houses). It is important to have a full debt relief plan.