As a Sacramento bankruptcy attorney I often encounter clients with one main question on their minds: If I file for bankruptcy will I necessarily lose my home?
To answer this question properly we have to look at your situation from the perspective of the trustee overseeing your case. The trustee's job involves wringing as much value as possible out of your bankruptcy estate in order to pay off your unsecured creditors. In a nutshell, this means that he or she won't attempt to sell your house if it doesn't look like there'll be enough money left over at the end of the day to benefit your unsecured creditors.
First, let's look at what happens if you sell your home without filing for bankruptcy. Your mortgage holder would get the first bite at the proceeds from the sale. That debt must be paid off first (since it's a secured debt). Next in line would be the holders of any liens (such as a tax or mechanic's lien). After that comes the cost of the sale and finally the taxes due as a result of the sale. Anything left over is yours.
If you file for bankruptcy and the trustee overseeing your case sells your house, the order of payees is essentially the same: mortgage holders, lien holders, costs of sale, and taxes. However, instead of you then scooping up the leftovers, the left over proceeds would go to your unsecured creditors.
Keep in mind, however, that many homeowners may qualify for what's known as a Homestead Exemption. This would entitle you to keep some of these left over proceeds. We'll look at this special exemption in more detail in an upcoming post.
I am a Sacramento bankruptcy attorney with additional offices in Fairfield, Oakland, and Walnut Creek. I offer free consultations to people considering filing for bankruptcy. Please call us today to set up your free consultation at 925-932-7086.
