Making the decision to file for bankruptcy doesn’t come easily. One of the most common concerns is the fear of losing one’s home.
Knowing Massachusetts homestead law can help you decide if keeping the house is the best choice.
Bankruptcy options
The two most common types of bankruptcy individuals file are Chapter 7 and Chapter 13. Chapter 7 is called “liquidation” bankruptcy and involves selling non-exempt assets to pay creditors. To be eligible for Chapter 7, you must meet a means test. In Massachusetts, a family of four with income below $161,149 may be able to file Chapter 7.
Chapter 13 is known as a “reorganization” bankruptcy, where debts are repaid over time according to a court-approved plan. Chapter 13 allows individuals with a steady income to keep their assets, including their homes, so long as they stick to the repayment plan.
One critical factor affecting whether you keep your home after filing for bankruptcy is the state’s homestead exemption. This exemption protects a portion of the home’s equity from creditors.
A basic homestead exemption automatically provides up to $125,000 of protection for your primary residence’s equity once you’ve recorded a declaration of homestead. There is also an enhanced homestead exemption, which increases the protection to $500,000 but requires a formal statement to be filed with the Registry of Deeds in the county where the property is located.
There are several factors to consider when considering bankruptcy:
- If the current equity in your home falls within the state’s homestead exemption limits
- Understanding the difference between Chapters 7 and 13
- Your future income potential
You already understand that declaring bankruptcy isn’t a decision to be taken lightly. It’s also not something you should try to do on your own. The process is complex, and you will want someone who can help you navigate the system and make informed decisions every step of the way.