Most individuals who find themselves faced with an avalanche of debt but who want to keep their homes file for Chapter 13 bankruptcy, which is more of a reorganization bankruptcy. However, to qualify for Chapter 13, you must have the ability to repay a portion of your debt over a three to five-year period. If you do not have the means to do this, you may have to file for Chapter 7. Does doing so automatically mean you lose your home? Not necessarily. According to SFGate, filing for Chapter 7 may not cost you your home. In fact, the more you owe on your Virginia home, the greater the likelihood the courts will let you keep it.
In Chapter 7 bankruptcy, your home must have enough equity to cover the remainder of your mortgage before other creditors can seek repayment. If you owe too much on your home, the bankruptcy trustee will not sell it to pay creditors. In this case, your debt, combined with Virginia's homestead exemption, may allow you to keep your home.
The best way to keep your home in a Chapter 7 bankruptcy is to work with your mortgage lender to reaffirm your debt. When you do this, you exclude your mortgage debt from your Chapter 7 bankruptcy altogether. The only pitfall to doing this is if your home falls into foreclosure post-bankruptcy, as such an instance would damage your credit even more.
You may also be able to keep your home in bankruptcy if you keep making payments on your mortgage loan despite the fact that the courts have already discharged the debt. If you keep making timely payments, the mortgage lender may determine it is in its best interests to allow you to keep your home rather than try to sell it.
The information in this post is meant to inform. It should not be construed as legal advice.