Filing for bankruptcy is a major decision. One of the biggest concerns for filers is whether they will lose their home. In Massachusetts, the answer depends on several factors, including the type of bankruptcy you file and the amount of equity you have in your property.
Here are some key points to keep in mind.
The Massachusetts homestead exemption
Massachusetts has a generous homestead exemption. This law protects up to $1,000,000 in equity in your primary residence from creditors. If your equity falls below this amount, you may be able to keep your home, even during bankruptcy. Equity is the value of your home minus what you owe on your mortgage and any other liens.
To receive full protection, a declaration of homestead must usually be recorded at the Registry of Deeds. Without it, the automatic protection is limited to $125,000.
Chapter 7 vs. Chapter 13 bankruptcy
The type of bankruptcy you file makes a big difference. In a Chapter 7 bankruptcy, the court may sell non-exempt assets to pay creditors. If the homestead exemption fully protects your home equity, it is less likely that your house will be sold.
In a Chapter 13 bankruptcy, you enter a repayment plan that lasts three to five years. As long as you keep up with your mortgage payments and the plan, you can keep your home, even if you have more equity than the exemption allows.
Even if your home is protected by the exemption, falling behind on mortgage payments could still put it at risk. Bankruptcy may stop a foreclosure temporarily, but long-term protection often depends on your ability to stay current with your lender.
Understanding your situation and the laws in Massachusetts is key to knowing what will happen to your home. To ensure you have the correct information, it is advisable to seek legal guidance.