What will happen to my home in bankruptcy?

In a chapter 7 bankruptcy, the first question is whether there is equity in the home. If there is, the next question is whether the equity is greater than the homestead exemption amount plus costs of sale. If there is equity that is not swallowed up by the exemption or costs of sale, then the trustee has the right to sell your home or make you buy it back for the excess amount. Otherwise, you have the choice whether to surrender the home or keep the home (subject to the bank's right to foreclose if you get behind on payments, sometimes requiring the bankruptcy court's permission first).

In a chapter 13 bankruptcy, unless you choose to surrender your home, you will continue making payments on the home, and if you are behind on the home, you are allowed to catch up over the course of the chapter 13 plan (three to five years).

You can do yourself a favor by not having the IRS withhold more than is necessary. If you claim all the exemptions you are entitled to claim on your W-4 withholding form, you are more likely either to have a smaller refund or actually owe money to the IRS at the end of the year. If this is the case, there will be no refund to be seized by the bankruptcy court.

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