Arizona Bankruptcy Laws Allow You To File For Bankruptcy And Keep Your Home

Generally, Arizona Bankruptcy Laws allow you to keep your home.  However, each person’s unique circumstances will govern how the bankruptcy law will apply to their situation.  Some of the common circumstances are addressed below.

Generally, people fall into two categories regarding their home.  They are either current or not current on their home mortgage payments.  If you are current on your mortgage and have $150,000, or less, of equity in your home you can file for bankruptcy and keep your home.  If you are not current, you still might be able to keep your home.  Chapter 13 Bankruptcy may allow you to keep your home even if you are not current but can make your monthly mortgage payments.

If Your Mortgage Is Current And There Is $150,000 Equity Or Less In Your Home

If you are current on your mortgage, meaning you are not behind on any payments, you can keep your home if you do not have more than $150,000 equity in it.  For example, if your house is worth $250,000 and you only owe $100,000 on it, you can file bankruptcy, keep your home and keep the $150,000 equity in your home.

If Your Mortgage Is Current And You Have More Than $150,000 Equity In Your Home

If you are current on your mortgage and have more than $150,000 equity in your home, one of two things may occur.  First, you can negotiate with the Bankruptcy Trustee and pay the difference between your $150,000 equity and the total equity in your home.  Or, second, you the Bankruptcy Trustee may sell your home and pay you $150,000, for the equity you had in your home.

For example, if your home is worth $250,000 and you only owe $75,000 on your mortgage, then the first $150,000 of equity is protected.  However, the remaining $25,000 in equity is not protected.  Consequently, you must either pay back the $25,000 to the Trustee so you can keep your home or allow the Trustee to sell your home and pay you $150,000 from the sale proceeds.

Option One: Pay The Difference

There are several ways to pay the difference.  You can get a loan for the difference or perhaps a family member can give you the money to pay the difference.  Another possibility is to pay off the difference over a period of three to five years in a Chapter 13 Bankruptcy plan.

There are several key concepts to remember when estimating the difference you will have to pay the Bankruptcy Trustee.  First, the market value of your home is negotiable.  So, you can reduce the difference you will pay by establishing a lower market value for your home.  Second, you can reduce the difference you will pay back by negotiating sale transaction costs out of the total equity.  This means you should be able to subtract the costs the Trustee would incur in taking possession of and selling your home, i.e., administrative expenses, marketing costs and real estate agent commissions.

Option Two: The Trustee Pays You $150,000 For Your Equity

If you do not pay the difference, as set forth above, then the Trustee will usually sell your home and reimburse you $150,000 for your equity.  A key concept to remember is the Trustee must believe there is enough equity in your home to pay all the administrative expenses of acquiring and selling your home as well as reimbursing your $150,000 equity.  So, if your equity in excess of $150,000 is a small amount, the Trustee may not sell your home if there is not enough excess equity (equity over $150,000) to pay all the costs involved in administering the sale and reimbursing your $150,000 equity.

If You Are Not Current On Your Home Mortgage Payments

If you are not current on your mortgage, you may still be able to keep your home.  This applies regardless of whether you have any equity in your home.  In fact, many people file bankruptcy in an effort to keep their home when they are behind on their mortgage payments.  There are several bankruptcy options that apply which will help you keep your home when you are behind on your mortgage.

If you have equity in your home, one option is to sell your home and take your equity up to $150,000.  Other options apply whether you have equity or not.  You may be able to keep your home by pursuing bankruptcy options for delinquent mortgages. For more information on these options, see my article titled: Will Filing Bankruptcy Stop Foreclosure?