I get this question all of the time: Can I keep my house if I have to file for bankruptcy?
Let me get one thing straight from the outset: we would never file a bankruptcy for you if it meant that you would lose your house that you wish to keep. Let me say that again: if we file a bankruptcy for you, you are not going to lose your house unless you wish to give it up.
How is that possible? Exemptions.
Exemptions are the part of the Bankruptcy Code that allow you to keep things even if you file for bankruptcy. Other articles on our blog have addressed or will cover other types of property that you are allowed to keep such as vehicles, retirement plans, household items, jewelry, etc.
But let’s talk about your house. The Code allows you to keep equity in your house up to a certain level. What is equity? Equity is the actual market value of your house (what it would sell for today to a willing buyer), minus the amount of liens against the house. Liens include mortgages, certain judgments, tax liens, and home equity lines of credit.
In later articles, we can look at how these amounts are determined, but for now, let’s look at a typical situation. Let’s say your house is owned by you and your spouse. That means you are both on the deed. And let’s say the house is worth $100,000 as determined by a certified appraisal.
Now let’s look at the liens. If there is a mortgage of $40,000 on the house, and a home equity line (actually a second mortgage) of $20,000, then there is a total of $60,000 in liens on the house. Take your $100,000 value, subtract the liens of $60,000, and you have $40,000 in equity.
How much equity are you allowed to keep in your house under the bankruptcy laws? This year a single person may protect up to $22,000.00 in equity for a home. If you are married, you and your spouse can keep up to $44,000.00 in equity.
Since you can keep up to $44,000 in equity, and according to the appraisal report you have $40,000 in equity. Under this scenario, you can keep your house, as long as you continue to pay the mortgage and home equity loans.
Yes, there can be complications not mentioned above, but for most people, this is how they can file bankruptcy and keep their house. So if you are interested in evaluating your situation, give us a call at 800-360-9392 and we’ll take a look at your financial situation and discuss the options that are available.