How Do I Know the Homestead Exemption?
There are federal and state bankruptcy exemptions. The Bankruptcy Code has a list of federal bankruptcy exemptions. Under the current federal bankruptcy exemptions from April 1, 2019, the homestead exemption is $25,150 per debtor. That means if you choose to file bankruptcy jointly with your spouse, you will have a $50,300 maximum exemption. The exemptions are updated every three years, and there should soon be an update.
Although there are federal exemptions, the Bankruptcy Code allows states to come up with their bankruptcy exemptions. Individuals filing for bankruptcy should use the state bankruptcy exemptions when seeking bankruptcy relief. Most states have homestead bankruptcy exemptions the debtors are required to use, while in some, the debtor can choose to use either the federal or state exemptions.
For example, assume you are looking to file for bankruptcy in Oregon. The homestead bankruptcy exemption is $40,000 for a single filer and $50,000 for a married couple who file bankruptcy jointly. You can also use a wildcard exemption if you want to protect more equity in your home. In this case, if you decide to file a Chapter 7 bankruptcy case, you can choose between the federal and state exemptions. It would be wiser to go with the state exemptions since they are higher compared to the federal exemptions in bankruptcy.
Most state bankruptcy exemptions change a lot, and it is important to check the current exemptions constantly. It will ensure you use the most current figures when calculating your non-exempt equity. Besides the homestead exemption, it is important to consider the exemptions that apply to your other assets- car, cash, etc. We have complied with the state guidelines in different states and combined them with a free bankruptcy exemptions calculator. Use the calculator below to see which personal assets will be at risk if you file bankruptcy.
What is the Effect of Non-Exempt Equity on a Bankruptcy Case?
In a Chapter 7 bankruptcy case, the role of the trustee is to work in the best interest of your unsecured creditors. Therefore, the trustee will try to look for property among your assets that they can sell to repay your unsecured debts. If you have non-exempt equity, then the trustee, if they deem fit, might sell the asset. After the sale, you will receive the exempted amount and the rest will be used to repay unsecured creditors.
In Chapter 13, the trustee will not sell your property. However, the non-exempt equity will still need to be paid to the unsecured creditors under the repayment plan. Hence, non-exempt equity will increase your monthly payments. Fortunately, you will not be paying more than you owe the creditor.
How a Trustee Values Your Home
The home appraisal process in Chapter 7 begins when a licensed appraiser evaluates your home. They will come, pay a visit, consider the location, size, and condition of the home, and compare it to home sales your the area. The comparison helps them get a fair value for the home.
Once the appraiser is done, the value they attach to the home becomes an important piece of information for the trustee and creditors in the case. If the value of the home is higher than the exemption limit as per the bankruptcy laws, the home may be subject to liquidation. The trustee could decide to sell the property depending on the unsecured debts and use them to repay the creditors.
But, if the value of the property is within the bankruptcy exemption limits, you get to keep your home. Each state has its exemption limits, with some offering generous exemptions for the debtor’s primary residency. Thus, debtors get to keep their homes even after filing for bankruptcy.
How Your Equity Is Calculated
Although each trustee will use a different method, here is a simple formula they all use to calculate non-exempt equity:
The market value of your home less mortgage payoff, any filed lien, closing costs, claimed bankruptcy exemptions
Note: Most trustees will recognize that the value during a quick sale is often lower than the appraised value of the home. Hence, sometimes, trustees use a lower value than the appraised value when determining the non-exempt equity.
Chapter 7 trustees do not go after a home with minimal equity. The process and cost of liquidating could be lengthy and tiresome based on how many unsecured creditors you have. It also depends on how much they will receive after the closing and selling costs. It is better to consult a bankruptcy lawyer if you have equity in your home before filing bankruptcy. They can explain how your equity could hurt or help your case and whether you risk losing your home.
Besides, an experienced bankruptcy attorney knows how trustees in their state approach their calculations and exemptions. For example, a trustee might deduct 10% from the appraised value to sell the home quickly, a tactic that an attorney might be familiar with.
What To Do If Your Debts are Overwhelming
Consider filing for bankruptcy and get your debts discharged. If you would like to know more about bankruptcy, set up a free bankruptcy consultation with a bankruptcy lawyer near you. Take this calculator below to figure out the bankruptcy exemptions based on your zip code.
