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Keeping your home in Chapter 7 and Chapter 13 bankruptcy

Homeowners considering filing for bankruptcy often wonder whether doing so means they will lose their home, and whether Chapter 7 liquidation or Chapter 13 reorganization is the better option. Most homeowners can keep their homes if they wish, and the situation is even better for Floridians than for most others.

Those filing Chapter 7 bankruptcy must liquidate any non-exempt assets to pay their creditors. This means that if you have equity in your home, your trustee may sell it to pay down your debts. State and federal guidelines exempt certain amounts of home equity from this process. In Florida, however, there is no limit to how much equity is exempt for most homes. Therefore, while most Americans with a good deal of home equity are well advised to file Chapter 13 instead of Chapter 7, that does not necessarily apply to Floridians.

Other situations make Chapter 13 a better prospect than Chapter 7 regardless of where you live. If you are behind on your mortgage payments and file Chapter 13, your mortgage “arrears” will be incorporated into your court-ordered payment plan, giving you three to five years to catch up on missed payments. You are therefore protected from foreclosure during the Chapter 13 process if you stay current on the loan and your bankruptcy payment plan.

If you have a second mortgage or other “junior lien,” the process of “lien stripping” may permit you to get rid of it. When a lien is stripped, the lender is treated as an unsecured creditor and will usually receive little to no money in your payment plan. Lien stripping is permitted in Chapter 13 bankruptcies, but not Chapter 7.

Chapter 13 bankruptcy is probably a better choice if you have missed mortgage payments, if you want to get rid of a junior lien, or if you have significant non-exempt equity. Otherwise, Chapter 7 may be a simpler and faster way to reduce your debt burden and keep your home.

O. Reginald (“Reggie”) Osenton is the Owner and President of Osenton Law Office If you need a Commercial Bankruptcy attorney in Brandon, Tampa business bankruptcy lawyer, call 813.654.5777 or visit

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