Legal Question in Bankruptcy in Idaho

Re: Home

Often lawyers have to give complicated answers to simple questions, and this is one of those times. The answer is �it depends.� The Bankruptcy Code contains exemptions protecting all sorts of things � tools of one�s trade, a certain amount of equity in an automobile, a limited amount of equity in a residence, etc. Most states, however, have opted out of the federal exemptions and provide their own exemptions, usually more generous, by state statute. You have to see what the exemptions are in your state and compare that to the amount of equity in the house.

If what you are asking is �can the lender accelerate the loan and kick me out even if my payments are current,� the answer is no. Most loan documents contain such an acceleration clause, but bankruptcy courts routinely hold them unenforceable. The general idea is that no creditor is allowed to retaliate against you just because you seek relief in bankruptcy.

Another consideration is whether there are liens on the house (in addition to the mortgage). The role of the bankruptcy trustee is to protect and secure payment for the unsecured creditors. If an asset is fully encumbered by the claims of secured creditors, then there isn�t much there for the unsecured creditors, and thus not much interest in the encumbered asset on the part of the trustee.

Also note that the impact is different depending on who files bankruptcy. If you are married, how the house is titled and whether your spouse also files bankruptcy is another issue.

Finally, in a Chapter 13 bankruptcy you have more ability to control the disposition of assets than in a straight Chapter 7.

The bottom line is that you should not assume that seeking relief in bankruptcy will inevitably lead to the loss of your house. You may be able to protect the equity with your state or federal exemptions, there may not be enough equity for the trustee to both with, and it may already be encumbered in favor of other creditors so that it is of little interest to the government. Consult with a knowledgeable and reputable bankruptcy specialist in your locality. He or she will be able to address this question more fully when you sit down and present the facts and discuss your options.