Does Bankruptcy Make You Lose Your Home?
Losing a home is a tragic event on its own. Getting your home taken from you can also be a very emotional event especially if the home holds many family memories and history over a long period of time. The loss of a house is tough just as filing bankruptcy can be difficult, but, both filing a bankruptcy and losing a home coupled together can be too much to handle. Both losing your home and filing for bankruptcy are for most people the two major events that happen in total financial ruin. Filing for bankruptcy doesn’t always mean you will lose your home. There are ways to make sure you know whether your home will be at risk even before you file a bankruptcy
How to Lose Your Home in a Chapter 7 Bankruptcy
When you have more equity than can be exempted in a bankruptcy and a bankruptcy is filed, you are in danger of allowing the bankruptcy trustee to put your home up for sale to use this equity as a resource to help pay your debts. Home equity exemptions also known as homestead exemptions in California are listed below. Keep in mind, these are the most common general guidelines for homestead exemption. Your bankruptcy attorney should be able to apply your situation to bankruptcy code to let you know what exemptions can be applied to you.
1. If single and under 65 years old, you can exempt $75,000 of home equity
2. If married or living with a family member and under 65 years old, you can exempt $100,000 of home equity
3. If you or your spouse are over 65 years old, you can exempt $175,000 of home equity
When your equity exceeds these amounts, you are in danger of having your home sold by the bankruptcy trustee in order for the bankruptcy court to access your equity to help resolve your debt.
How Does It Work?
The bankruptcy trustee can take a look at your property and make their own evaluation of how much your property is worth. In the case that they feel it has more equity than you can exempt, they can take action to sell the property. For example, if you are single and you have $200,000 of equity in a property and you filed a Chapter 7 bankruptcy, the bankruptcy trustee will recognize that you only qualify for a $75,000 equity exemption. The bankruptcy trustee may take action to sell your home to access the $125,000 of equity that cannot be exempted. The $75,000 of equity that can be exempted will be returned to you as cash after the sale of the property.
What Is the Reasoning Behind This?
Many of us would wonder, why would someone file a bankruptcy if they have $200,000 of equity in their home? This is a very good question. The answer is that not many people would file for bankruptcy if they were single and had $200k in equity in a home because of the equity exemption guidelines. If you have a lot of equity and you don’t want to lose your home, maybe bankruptcy is not the best option for you, but you better have a good attorney figure that out.
Most people would sell the property themselves and use the resources as they need to in order to resolve debt issues. So, the equity exemption guideline would actually deter people from filing bankruptcy if they know how exemptions work. This is why it is so important to work with a bankruptcy attorney. You need someone behind you that knows how all of this works. If the bankruptcy attorney is knowledgeable and trustworthy, they would let you know ahead of time before you file that you may be endangering your home if you have too much equity. After you have all the risks and information you need in front of you, then you can decide if filing for bankruptcy would be the best solution.
Bankruptcy Law Professionals attorneys and staff are experts in dealing with home equity exemptions. We were helping hundreds of people during the Great Recession to resolve debt with equity in their homes. Contact Bankruptcy Law Professionals at 855 257-7671 to schedule a free consultation with an attorney.
