Most clients ask if I can help them keep their house or car if they file for bankruptcy protection. I tell them that they probably can keep the house, but it may not be in their best interests to do so.

When advising clients about keeping a house, it’s a pretty simple analysis. If the house is worth significantly more than you owe, keep it. If it’s worth significantly less than you owe, let it go. Anything in between requires a little more investigation. It’s the underwater house in the second category that concerns people.

There are plenty of reasons to keep a house that go beyond the objective numbers. There are also sentimental reasons for keeping a house. Maybe your great-great-grandfather built the house and he’d roll over in his grave if he knew you lost it. Maybe you built your dream house just 5 years ago, you love it, and it would break your heart to lose it. Or maybe you have so many memories of raising your kids in that house that you can’t bear the thought of losing it. These are all valid reasons for overpaying for an underwater house.

But before you make that decision, ask yourself if overpaying for that house will be worth the things you’ll have to sacrifice. If you continue to make that $1500/month mortgage payment instead of renting something for $1000/month, you’ll likely have to cut back in other areas. What would you do with that extra $500/month if you moved? You won’t start to build equity for many years, so you should think about those mortgage payments as little more than rent with the added benefit of a tax deduction. If you are still willing to pay more to live in that specific house rather than move after considering these points, a bankruptcy attorney can help you achieve that goal.

To summarize: Can you keep your house? Probably. Should you? Maybe not.

Image credit: respres/Flickr