Yes, You can still own your house after you file Ch. 7

Yes, You can still own your house after you file Ch. 7

By Peter Bricks , an Atlanta bankruptcy attorney.

I occasionally get calls from my former clients who have filed a Chapter 7 bankruptcy in Atlanta , received a discharge, and seen their case closed, which begin with the comment “Now that I no longer own my house because my Chapter 7 is over …”

The client who makes that comment is almost always still living in the same home as when he filed Chapter 7 bankruptcy and intends to remain there for a good while. Prior to the filing of the case, I explained to him that he was not going to lose his home simply due to filing Chapter 7.

When the client asks this question, I always remind them that they still own their home, assuming the bank has not foreclosed. Title ownership is an asset. The debtor only loses the asset in Chapter 7 if the trustee liquidates it because the debtor has more equity than is allowable for his exemptions.

The mortgage associated with the home is a debt. The debtor gets rid of the debt in Chapter 7 by not reaffirming, but keeps the asset. Now it is critical to remember that while the debtor gets rid of the technical “debt” to the creditor, the creditor retains its lien on the home because the debtor cannot get rid of the lien in Chapter 7 bankruptcy (the 11th circuit currently allows debtors to get rid of underwater liens in Chapter 7, but is the only circuit to do so).

Therefore, in the majority of Chapter 7 cases, the debtor retains his ownership, gets rid of his debt obligation, and the creditor still has a lien on the property which exceeds the value of the home. For example, if the debtor owns a $150,000 home but the mortgage is for $180,000, the debtor will still be on title since the trustee could realize no equity, but the debtor’s title ownership could not be sold for profit because the creditor’s lien exceeds the value of the home.

Finally, it is important to note that to stay in the home and not be foreclosed, the debtor must continue to remain current with the creditor after filing Chapter 7, or else the creditor will exercise its lien rights that survive the bankruptcy discharge to foreclose on the home according to state law regardless of the fact that the “debt” no longer technically exists.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Cumming and Jonesboro, Georgia.