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Homestead laws and bankruptcy

Wisconsin residents who find themselves so far in debt that they won't realistically be able to pay it back may consider filing for bankruptcy. Many choose Chapter 7 bankruptcy because it can eliminate most or all of someone's unsecured debt. However, some people may hesitate to file because an individual's assets may be used to pay off some of their debts to creditors before their remaining debt is discharged by the bankruptcy.

Homeowners sometimes wonder if they'll lose their home if they file for bankruptcy. While it is possible that someone's home could be sold to pay creditors, it only occurs in certain circumstances. One of the determining factors is if someone's home has a large amount of equity in it. If a homeowner owes more than the home is worth or if there is little equity in it, there is essentially no point in selling the home, so in these cases homeowners might be safe.

However, even if someone does have a large amount of equity in their home, they may still be able to hold on to it. Many states have what are called homestead laws. They enable people to keep their houses when they file for bankruptcy as long as it has less than a certain amount of equity in it.

One way that someone can be sure of the status of their home if they file for bankruptcy is by working with an attorney. An attorney could go over current homestead exemptions and help someone determine if their home falls under this protection. Additionally, an attorney could help someone file their bankruptcy paperwork and ensure that it is accurate.

Source: FOX Business, "How Safe is My Home in Chapter 7 Bankruptcy?", Justin Harelik, August 21, 2013

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