Protect your home if bankruptcy is coming

State laws vary, so seek professional advice

Question for the expert Dear Credit Care,
We have a home that does have equity, but we don't want to sell because our credit is ruined and we won't be able to get another home. We have only credit card debt besides our home mortgage. We can't pay all the cards. We have been trying for a long time and have paid them down a lot, but can't any longer. Should we file bankruptcy? Can we keep our home when we file, or should we just stop paying the credit cards? We really want to keep our home! -- Laura

Answer for the expert Dear Laura,
Bankruptcy is certainly an option if you truly can't pay your credit cards. However, because the laws changed in 2005, you may not qualify for a Chapter 7 filing, in which your credit card debt would be eliminated in full. Unless your income is less than the median income for your state of residence, you would most likely instead have to file under Chapter 13, in which at least a portion of your credit card debt would have to be repaid.

Should you file a Chapter 13, you would be allowed to keep your home. How much you would have to pay your creditors in a Chapter 13 filing would depend on your income and how much you owe in total. Keeping your house in a Chapter 7 filing (should you qualify for it) would depend on whether the equity in your home would be considered exempt in your state. Due to the many different variables involved with filing bankruptcy, it is best to hire an attorney to assist you with the process. If you can't afford an attorney the American Bankruptcy Institute has a list of pro-bono bankruptcy attorneys.

The bankruptcy laws now require that consumers who wish to file for bankruptcy must complete a pre-bankruptcy credit counseling session. Talking with a credit counselor will help you determine if you have other options for paying your credit card debt, or if filing for bankruptcy is your only alternative. The website for the Treasury Department's bankruptcy division has a list of approved credit counseling agencies for your district.

Once you have participated in the mandatory credit counseling session you will have a better idea of whether or not you need to file for bankruptcy, if you can afford to pay your credit card debt through a  debt management plan or if by making some adjustments to your spending, you can continue to pay your creditors on your own.

Stopping payments on your credit card accounts prior to filing bankruptcy is not a good idea. If you don't pay, your creditors could sue in court and receive a judgment for the amount owed. With a judgment the creditor could garnish wages (if allowed in your state) or place a lien on your home. Not paying takes the choices out of your hands and gives them to your creditors.

Filing for bankruptcy will severely damage your credit for many years, but is a viable option if you have no other workable alternatives. To assure your home is protected in the bankruptcy, be sure you hire an attorney who is experienced with the bankruptcy laws in your state.

Handle your credit with care!

See related: Considering bankruptcy? Use the 'divide by 60' test

Meet's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday,'s Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.

Updated: 12-09-2018