Bankruptcy courts understand the importance of keeping your home and car. There are certain rules that may allow a person to keep their home or car under what is called a "Homestead Exemption" or "Automobile Exemption."
Homestead exemptions vary by state and marital status. The concept is very simple: if your home has more equity in it than the amount of your state's homestead exemption; you will be forced to sell your home to pay off your other debts. If your homestead exemption is higher than the amount of equity in your home, you may be able to keep your home even after you file for bankruptcy.
For example, if you have $25,000 in equity in your home, and your state's homestead exemption is $50,000, you may be able to keep your home. If your equity is $150,000, the court will force the sale of your home in a chapter 7 bankruptcy proceeding. However, you could file Chapter 13 bankruptcy and still keep your home.
Automobile Exemptions work very similar to homestead exemptions. However, if you are behind on car payments in a Chapter 7, your car may still be repossessed by the creditor in the bankruptcy proceeding if you do not pay your back payments. However, Chapter 13 could provide you an opportunity to prevent the repossession of your car even if you are behind on the payments.
