Keeping a House When Filing Chapter 7 Bankruptcy

Are you thinking about filing for Chapter 7 bankruptcy in the Tampa Bay area but have concerns about liquidating your possessions, particularly your home? Many debtors in Tampa have questions about how bankruptcy will impact their ability to keep a house. Indeed, you might be wondering whether Chapter 7 bankruptcy is actually right for you since you own a home and have a lot of equity in it. We regularly assist individuals in West Central Florida who have questions and concerns about filing for Chapter 7, or liquidation, bankruptcy. While you cannot keep any and all assets when you decide upon Chapter 7 bankruptcy, there are a number of ways that you can retain assets that are important to you, including your house.

Before we explain how Florida residents can keep a house after filing for Chapter 7 bankruptcy, it is important to understand how this type of bankruptcy typically works.

What is Chapter 7 Bankruptcy?

According to the U.S. Courts website, Chapter 7 bankruptcy is a form of bankruptcy that can be used by individuals and businesses in the Tampa Bay area. It does not involve repaying debts you owe on your own (in other words, making plans with creditors for repayment) or developing a repayment plan, as individual debtors must do as part of Chapter 13 bankruptcy proceedings. Instead, as the website clarifies, in Chapter 7 bankruptcy “the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.” You must be eligible to file for Chapter 7 bankruptcy relief based on your income and other factors.

Given the liquidation requirements in Chapter 7 bankruptcy, a bankruptcy trustee will be assigned to your case, and all property that is not exempt will be sold, or liquidated (thus the term “liquidation bankruptcy”). The bankruptcy trustee will then take that money generated from the sale of your assets will use it to repay your creditors as sufficiently as possible. When you have a mortgage on a house, the bankruptcy trustee cannot simply take the house—after all, it is still owned by the creditor if you have a mortgage on the property. However, in some states, a bankruptcy trustee may be able to use the equity in the home—the amount of money you have paid that has gone to the principal and not to interest, essentially—and use it to repay your creditors.

In Florida, though, equity in a home is handled a bit different. Most important, then, in considering the issue of keeping your house when you file for liquidation bankruptcy, is learning more about exemptions.

Learning More About Florida Bankruptcy Exemptions and the “Homestead” Exemption

Depending upon the particular state in which you file for bankruptcy, you either will use federal exemptions or state-specific exemptions. For anyone filing for bankruptcy in the Tampa Bay area, you will be required to use Florida exemptions. What is an exemption? In short, Florida law specifically states what assets will not be subject to liquidation during Chapter 7 bankruptcy. These “exemptions,” as they are called, will not be subject to sale, and thus you can keep them even while the rest of your assets are liquidated.

Fortunately for Tampa debtors, Florida law provides one of the most substantial homestead exemptions. Chapter 222 of the Florida Statutes discusses the homestead exemption, which is simply another name for the exemption for the home in which you live. Under Florida law, debtors who are filing for bankruptcy can exempt an unlimited amount of equity in their homes, as long as the property is smaller than half of an acre if is within a municipality, or smaller than 160 acres if it is not.

There is only one other requirement to make use of this generous homestead exemption. Florida law requires that you owned the property for at least 1,215 days before you filed for bankruptcy. If you do not meet this requirement, then you may not receive the benefit of a full exemption.  The issue of exemptions for new Florida residents can be quite complicated, and a full analysis would require the expertise of an experienced bankruptcy attorney.

Contact a Bankruptcy Attorney in Tampa

If you have additional questions about filing for bankruptcy, an experienced bankruptcy lawyer in Tampa can help. Contact Samantha L. Dammer today.

Resources:

http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0200-0299/0222/0222ContentsIndex.html&StatuteYear=2012&Title=-%3E2012-%3EChapter%20222