In a bankruptcy, the question of walking away from a home often arises because the owner can no longer afford to make the mortgage payments, even when loan modifications have been made. The answer to that question is usually yes, but there are some factors that need to be considered.

A Chapter 13 bankruptcy filing is designed to allow a person the chance to reorganize their debts in the hope of staging a financial recovery. A person may want to file Chapter 13 in order to save their home and give them a chance to catch up on their mortgage payments. Chapter 13 filings usually include a supervised plan to pay off all or a portion of the person’s debts over a three to five year period. One payment is made to the bankruptcy trustee who then makes multiple payments to creditors until the debts are satisfied.

When this is not possible, the only option some people have is to file Chapter 7, which wipes out all unsecured debt, including personal loans and credit cards, but allows a person to keep their home and some assets, such as a vehicle. One of the primary factors that determines whether a person is eligible for a Chapter 7 filing versus a Chapter 13 is income. Chapter 7 is usually reserved for people who have relatively low incomes or have recently lost their source of income, perhaps as the result of a layoff or job termination.

A bankruptcy attorney may help individuals determine whether they are eligible to file bankruptcy and, if so, which type of filing would be more appropriate. The matter of keeping one’s home may depend on how much equity is involved and the ability to make mortgage payments after filing.

Source: Fox Business, “Can I walk away from home in bankruptcy?”, Justin Harelik, December 11, 2013