A common misconception about real estate in a bankruptcy proceeding, is that you will certainly lose your home. More often than not, a person filing a bankruptcy case will not lose his or her home. If you have no equity in your property (meaning that after the balance of the mortgages and other liens are deducted from the value of your property, there is little to no value left), the trustee in your bankruptcy case will take no action against your property. A trustee (who is the individual assigned to administer your bankruptcy case) will determine if there is any equity in your property and if there is little to none, will “abandon” his interest in your property. That means that the trustee has determined that the sale of your property would not benefit your creditors and as such, he does not want the property.
If your property does have equity, you can file a Chapter 13 case, and propose a plan to repay your mortgage lender any arrears that might have accrued on your account. You may also propose a plan that allows you to retain your real estate for a temporary time, with the intent to sell your property after a specific window of time. How you propose to treat the mortgage company in your bankruptcy case would depend upon your specific circumstances and upon your ultimate goal with regard to the property.
Notwithstanding what bankruptcy chapter you file, you will receive the benefit of the “automatic stay”, which means that actions against your property (with some limited exceptions) will be immediately discontinued, at least temporarily. This freeze on legal action against your property can give you the time you need to carefully review your options without the pressure of aggressive creditor activity.
Sometimes a bankruptcy case is utilized solely for the purpose of saving real estate – whether a primary residence or multiple pieces of investment property. Depending on many varied circumstances, bankruptcy can be a great tool in achieving that objective.