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Can you keep your home during a California bankruptcy?

There are many reasons why responsible and upstanding citizens of California find themselves considering bankruptcy. Sometimes, an unexpected medical event or accident leaves you with a crippling amount of medical debt. Other people incur massive debt while seeking treatment for cancer. Divorce, loss of a job and many other factors can quickly destabilize someone's financial situation.

When you can no longer afford life's necessities and continue paying the minimum amounts due on your debts and credit cards, bankruptcy may be a solution. Depending on your overall assets and income, either Chapter 13 or Chapter 7 bankruptcy might offer you relief from overwhelming debts and aggressive collection efforts. Many people worry, however, that they will end up losing important assets during bankruptcy, like their home. Thankfully, that doesn't have to be the case. There may be options for saving such assets.

Bankruptcy offers a fresh start from serious debt

Depending on your income, Chapter 7 bankruptcy may allow you a chance to discharge most of your unsecured debts, including medical debts and credit card debt. If you pass the means test, you will not have to repay debts eligible for bankruptcy discharge. However, the courts may require the sale of some of your assets to repay debts if possible.

Another common personal bankruptcy option is Chapter 13. In Chapter 13 bankruptcy, you work with the courts to create a reasonable and workable repayment plan based on your income and your debt. After a specific period of several years, the courts discharge any remaining unsecured debt if you make all payments in a timely manner.

Which bankruptcy type a person selects is among the things that can impact what options they might have available for keeping their home.

There is a homestead exemption for some of your equity

If you are filing for bankruptcy and own your own home, you typically can exempt up to $24,060 in accrued equity from liquidation to pay off creditors. For those who own a home with a spouse or another person, the personal interest of the individual filing may not exceed $24,060, although the total equity in the shared property may exceed that amount.

The courts also allow an exemption of up to $4,800 in value in a motor vehicle and personal items, such as furniture or household goods, which are not worth more than $600 each. There are several other exemptions for property available as well. Any assets with a value that exceeds those exemptions, however, will generally be subject to liquidation by the courts.

Consider your options carefully prior to bankruptcy

While the process seems intimidating, with the right help, bankruptcy may be able to offer you a fresh financial start. While there are certain situations in which a person's home could be in danger during a bankruptcy, depending on the circumstances, there can be a variety of tactics homeowners may be able to pursue to try to protect their home in connection to the bankruptcy process.

Reviewing your assets, including your home equity, prior to filing can be key to making the right decision for your current circumstances.

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