Saving Your Home and Car
Bankruptcy courts understand that a person's home and car are essential to his or her life. There are rules that may allow a person to keep his or her home or car under what is called a "homestead exemption" or "automobile exemption."
Homestead exemptions vary by state and marital status, but the basic concept is simple. If you have more equity in your home 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 are very similar to homestead exemptions. However, if you are behind on car payments in a chapter 7 proceeding, the lender that made your car loan may still repossess that car in the proceeding if you do not make all back payments. By contrast, a chapter 13 proceeding might allow you to prevent such repossession even if you are behind on payments.