Learn whether you can keep your land in bankruptcy.
You don't give up everything when you file for bankruptcy, and keeping land is possible. Whether you can keep it will depend on several factors, including:
- how you use the property
- the equity in the land
- your state's exemption laws, and
- the bankruptcy chapter you file.
You can learn more in Property and Exemptions in Bankruptcy.
Keeping Your Land Using Exemptions
You'll use bankruptcy exemptions to protect property regardless of the bankruptcy chapter you file. The homestead and wildcard exemptions are the two used most frequently to protect land.
Homestead Exemption
Most states allow residents to protect a certain amount of equity in real property, but the amount varies widely from state to state. The homestead exemption is limited in the sense that it protects property that you use as your primary residence. So you'll have to live on your land to use this exemption. Also, the homestead protection might be limited depending on if it's located in a city or agricultural area, the types of buildings on it, and its use. You can use Nolo's state bankruptcy exemption charts for information specific to your state.
Wildcard Exemption
If you don't use your land as your primary residence, you won't be able to protect it with the homestead exemption. And exemptions for unimproved land don't exist. But you might have other options.
A wildcard exemption allows you to protect any property of your choosing. Unfortunately, not many states offer generous wildcard exemptions. However, if your state allows you to choose between the state and federal exemption systems, you might fare better. The federal system offers a more generous wildcard exemption than most states.
States that allow debtors this exemption choice include: Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.
How Chapter 7 or 13 Helps (or Hurts) Your Ability to Keep Land
If you can't adequately protect land using an exemption but you'd like to keep it, filing for Chapter 13 will be your best bet. Knowing the differences between the two chapters will help you understand why.
Your Land in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is known as "liquidation" bankruptcy. In exchange for wiping out qualifying debt, you agree that the bankruptcy trustee appointed to your case can sell any property that isn't protected by a bankruptcy exemption. The trustee uses the funds to pay your creditors.
If you own land free and clear, you'll need to protect the entire value with a bankruptcy exemption. If it's financed, you'll need an exemption to protect the equity—the amount that would remain after selling the property and paying off the mortgage.
Learn more about protecting property with bankruptcy exemptions.
Your Land in Chapter 13 Bankruptcy
You don't have to give up property in Chapter 13—even if it is wholly or partially nonexempt. But keeping it can be expensive. You'll have to pay the value of the nonexempt portion through your three- to five-year repayment plan. If the nonexempt part of the land is worth a lot of money, you'll end up with a high monthly payment. You'll have to prove you have sufficient income to make the payment before the bankruptcy judge will confirm (approve) the plan.
