Arizona residents may be confused or misinformed about how owning a home affects their choice of filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. Some may assume that home ownership automatically disqualifies them from filing a Chapter 7. It is usually the equity rather than the home itself that disqualifies them, however.

Money that is available to pay creditors can take many forms. One form is the equity that a homeowner builds as the value of his or her property rises. In a Chapter 7, a person with equity in his or her home that exceeds a certain amount might have to worry about having the home taken and sold to pay creditors.  Alternatively, Chapter 13 bankruptcy can be an alternative for consumers with a high amount of equity in their homes.

A Chapter 13 offers a consumer the opportunity to stop foreclosure and stop creditor harassment. A person in a Chapter 13 bankruptcy repays all or a portion of the debt under a court-supervised plan with manageable payments over a three- to five-year period. If he or she is in arrears in making mortgage payments to the bank, filing for a Chapter 13 bankruptcy could potentially repay the delinquent payments over an extended period under the protection of the bankruptcy court.

Unlike a Chapter 7, a Chapter 13 bankruptcy does not require the person filing it to liquidate assets. Equity in a home would not disqualify a person from filing for Chapter 13 as it might in a Chapter 7. The recent economic crisis and the decline in residential property values wiped out the equity that many people had in their homes. An Arizona resident who is considering filing for bankruptcy should speak to a Arizona bankruptcy attorney about the options that are available and the qualification requirements that might apply.


Source: Fox Business, “Can you file Ch. 13 if you own a home?,” Justin Harelik, March 05, 2013