California Homeowners May Keep Homes in Chapter 7 Bankruptcy

Khan Law Offices is advising California homeowners on how to navigate Chapter 7 bankruptcy while aiming to retain their residences. The firm emphasizes that while keeping a home is often possible, it hinges on several key factors: the amount of equity in the property, the applicability of California's homestead exemption, and the status of the mortgage payments.

In Chapter 7 bankruptcy proceedings, a court-appointed trustee evaluates a debtor's assets to identify those that can be liquidated to repay creditors. A home is considered an asset, but debtors can protect certain property using exemptions. California's homestead exemption allows homeowners to shield a portion of their home's equity from being sold by the trustee. Equity is calculated as the difference between the home's market value and the outstanding mortgage balance.

The amount of equity protected by California's homestead exemption is subject to specific legal limits, which can be adjusted annually for inflation and may vary by county. While the protection is often automatic, it must be properly claimed within the bankruptcy filings. If a homeowner's equity exceeds the exemption amount, the trustee may consider selling the property. However, a sale is not guaranteed if the proceeds after deducting liens, sale costs, and the exemption would not provide significant value to unsecured creditors.

Maintaining mortgage payments is crucial for those wishing to keep their homes, even after bankruptcy. Filing Chapter 7 can discharge personal liability for a mortgage, but it does not eliminate the lender's lien on the property. Homeowners typically must continue making payments to stay current. Khan Law Offices offers consultations to review a homeowner's specific financial situation, including equity, mortgage debt, and exemption rights, to determine the potential risks and options before filing for bankruptcy.