There are many factors about bankruptcy that leave people reticent to seek its protection. For example, worries about the asset liquidation process involved in Chapter 7 bankruptcy could inspire some people to avoid bankruptcy when they would most certainly benefit from the discharge of their unsecured debts.
While it is true that those who qualify for Chapter 7 bankruptcy do face the liquidation of certain assets as part of the process, that doesn't inherently mean you will lose ownership of your home. In fact, you can exempt some of the equity in your home from liquidation in bankruptcy.
After all, home ownership is the cornerstone of the American dream, and few families would seek bankruptcy if it meant losing out on their home. Connecticut has protections in place so that bankruptcy can help you rebuild your financial situation, not make it worse.
Connecticut offers relatively lenient homestead exemptions
Those who pass the Connecticut means test likely qualify for the protection of Chapter 7 bankruptcy. In other words, if your adjusted annual income is less than the average income in the state, you could potentially benefit from Chapter 7 bankruptcy.
However, because Chapter 7 is liquidation bankruptcy, your creditors may have claim to some of your assets prior to the discharge of your debts. The rules about liquidation are in place to protect the companies that lend money from unscrupulous behavior on the part of borrowers, who could intentionally increase their debts before seeking bankruptcy protections.
However, homestead exemptions balance those protections by helping people remain in their family home even when they must seek bankruptcy discharge for their debts. Homeowners filing bankruptcy can protect up to $75,000 worth of equity in their home. If you have more than $75,000 worth of equity, the courts may order you to refinance the property and use that excess equity to repay some of your creditors.
Chapter 7 bankruptcy could help you keep your house
When you feel overwhelmed by your monthly debt burden, you may have trouble simply meeting the expenses for your family. You may have to choose between paying on a credit card bill or buying groceries. Sometimes, that can mean not having enough money to pay your mortgage on time.
Chapter 7 bankruptcy can offer homeowners the opportunity to get out from under staggering unsecured debt and regain control of their finances. By discharging credit card debt, Chapter 7 bankruptcy helps you free up more of your monthly income to go toward your mortgage and other critical expenses.
If you worry that Chapter 7 bankruptcy could impact your home ownership status, you should consider your situation with a Connecticut attorney. An attorney can help you make a more informed decision about your financial future.