Can I Lose My House If I File Chapter 7 Bankruptcy in Oregon?

Bankruptcy Exemptions

You may exclude certain property from the bankruptcy estate. In a Chapter 7 case, exempt property can not be sold for the benefit of creditors. In a Chapter 13 case, exemptions reduce the amount you may have to pay to unsecured creditors. A house saddled with a mortgage need only be exempted for the amount of the equity. For example, if your house is worth $100,000 and your mortgage balance is $90,000, your house has $10,000 in equity. $90,000 of the value of the home is tied up by secured debt and therefore is of no value to the estate; however, the equity of $10,000 would be estate property. Without exemptions, a Chapter 7 trustee could sell your home, pay off your mortgage and keep the remainder for the estate, and in a Chapter 13, you would have to pay at least $10,000 to unsecured creditors. Exemptions protect that equity for your benefit. If your home has no mortgage, your equity is the entire value of your home, and whether your home is protected will depend on where you live and what chapter you file.

Although bankruptcy is ruled by federal law, most states have their own bankruptcy exemption scheme. Section 522 of the Bankruptcy Code allows debtors to choose whether they want to elect federal exemptions or state exemptions. One may be more favorable than the other, depending on the state. However, the Code also permits states to opt out -- a state may enact a law providing that residents of that state may not choose the federal exemption scheme.

Section 18.300 of the Oregon Revised Statutes (ORS) states that Oregon has opted out of the federal exemption scheme. Residents of the state of Oregon may not use the federal exemptions offered by the Bankruptcy Code when protecting their property during bankruptcy. Instead, Oregon bankruptcy debtors can only use the exemptions listed in Chapter 18 of the ORS, which includes a homestead exemption.

ORS Section 18.395 states that a bankruptcy debtor in Oregon may exempt up to $40,000 of his home's value from the bankruptcy estate. Married debtors filing bankruptcy jointly may exempt up to $50,000 of their home's value. Therefore, if your home has less than $40,000 of equity if you're single or $50,000 if you're married filing jointly, your home will be exempt from the bankruptcy estate. A Chapter 7 trustee could not sell the property, and a Chapter 13 plan would not have to provide that the equity be paid to creditors. If the equity in your home is more than the exemption amount, a Chapter 7 trustee may try to sell the property, and in a Chapter 13 case, you would have to pay the value of the equity beyond the exemption to creditors. If you have excess value in your home, you may not necessarily lose the property. A Chapter 7 trustee may offer to accept a compromise in which you pay a sum to the estate to keep the property. Alternatively, a Chapter 13 case would prevent your home from being liquidated, allowing you to pay the equity to creditors over a three-to-five-year period.