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Question: “Can we declare bankruptcy without losing our mortgaged house?”
Answer: The answer depends on two things. First, it depends on how much equity you have in your house. In pertinent part, the applicable South Carolina law states:
SECTION 15-41-30. Property exempt from attachment, levy, and sale.
The following real and personal property of a debtor domiciled in this State is exempt from attachment, levy, and sale under any mesne [sic] or final process issued by any court or bankruptcy proceeding:
(1) The debtor's aggregate interest, not to exceed fifty thousand dollars in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor, except that the aggregate value of multiple homestead exemptions allowable with respect to a single living unit may not exceed one hundred thousand dollars.
In sum, the above law means that if you have less than $50,000 of equity in your home, then it cannot be sold and used to pay unsecured creditors. If you have more than $50,000 in equity, then the house can be sold, but your mortgage would get repaid first, then you would get $50,000 second, and the unsecured creditors would be paid from the remaining proceeds.
However, if you do have more than $50,000 in equity, you can still prevent the sale of the house by filing for bankruptcy protection under Chapter 13. In a Chapter 13, your house would not be sold, but you would need to pay your creditors the amount that they otherwise would have gotten from the sale. The good news is you have 3 to 5 years to repay them (you would pay into a monthly “plan,” and the bankruptcy trustee would distribute the funds to your creditors). The bad news is that waiting 3 to 5 years to be discharged is can be frustrating. Still, it’s worth it if you can keep your home.
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