- 1). Do not file a Chapter 13 when the equity is not covered or protected under a Chapter 7 bankruptcy. When you file a Chapter 7 bankruptcy, you can keep your home if there is no equity. To determine how much equity you have, subtract the balance of all mortgages from the fair market value of your home. If you have equity, some of it may be exempt, which means it is protected from the claims of creditors. When the exemption does not cover the equity, you must file a Chapter 13 bankruptcy to keep your home.
- 2). Stop making your payments. When you have filed bankruptcy, you will still need to continue making payments if there is a balance on your loan. The lender can start foreclosure proceedings if you discontinue your monthly payments.
- 3). Turn your home over to the bankruptcy trustee. If you decide to give up your home, you will not be responsible for any balance after the home is sold. The home will be sold by the trustee and the proceeds will go towards your remaining balance.
- 4). Discontinue making payments with a Chapter 13 plan. A Chapter 13 is a wage-earners plan. This plan is designed for you to make payments on certain debts through a repayment program. You pay the trustee and the trustee pays your creditors. If your home is included in the repayment plan, your bankruptcy can be dismissed if you stop making payments to the trustee. When a bankruptcy is dismissed, creditors can begin collection activities, such as foreclosure.
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