If you own land, whether you can keep it in bankruptcy depends on:
- how much equity you have in the property
- whether your principal residence is located on the land
- the exemption laws of your state, and
- whether you are filing for Chapter 7 or Chapter 13 bankruptcy.
To learn more about how bankruptcy affects your property, visit our Property and Exemptions in Bankruptcy topic area.
What Happens to Property in Chapter 7 Bankruptcy?
If you file for Chapter 7 bankruptcy, the appointed bankruptcy trustee has the authority to sell your nonexempt property to pay back your debts. How much property you can keep in Chapter 7 bankruptcy depends on the exemption laws of your state. But if you have no equity in a piece of property (meaning the amount of liens on it exceeds its value), a Chapter 7 trustee will not go after it because there is no benefit to the bankruptcy estate.
The Land Your Home Is Located On
In general, the value of your home includes the land it is located on. If you have a home and reside on the land you own, you can usually use a homestead exemption to protect a certain amount of equity in the entire real property. However, keep in mind that some states place acreage limits on how much land you can exempt or require a certain percentage of the land to be used for residential purposes. As a result, review your state’s homestead exemption or talk to a knowledgeable bankruptcy attorney to make sure all of your land and structures are exempt prior to filing your case.
Land With Other Property or No Improvements
If your land has no improvements on it or has a house (or other structure) you don’t reside in, then you can’t use the homestead exemption to protect it in bankruptcy. In that case, you must look to other exemptions offered by your state. Unless your state has a specific exemption for land (which would be rare), you will typically need to use a wildcard exemption to protect your land. Unfortunately, not many states offer generous wildcard exemptions.
Keeping Land With Chapter 13 Bankruptcy
If you don’t have enough exemptions to protect your land, you may be able to keep it by filing for Chapter 13 bankruptcy instead of Chapter 7. In Chapter 13 bankruptcy, you get to keep all property including nonexempt assets. In exchange, you have to pay your unsecured creditors an amount equal to the value of your nonexempt property in your repayment plan.
This means that if your nonexempt land is worth a lot of money, you may have to pay off all or a significant portion of your unsecured debts through your bankruptcy. As a result, this can lead to an infeasible plan with a high monthly payment.
To learn about how Chapter 13 works, see Chapter 13 Bankruptcy Basics.