Bankruptcy And Keeping Your Home
If you are considering filing bankruptcy with the goal of keeping your home, there is good news. There are numerous ways in which you can keep a home in bankruptcy even when you have equity in that home. You can also prevent a foreclosure with a Chapter 13 bankruptcy, and we have written more extensively about that in our article Emergency Bankruptcy To Stop Foreclosure.
The Homestead Exemption
Under N.C. Gen. Stat. sec. 1C-1601(a)(1), you can exempt up to $35,000.00 in equity of any real or personal property used as a residence. If you own the property with your spouse, this amount doubles to $70,000.00. Your equity is generally calculated as your fair market value minus obligations (mortgages). While there are costs of sale to be considered as well, the bankruptcy court is most interested in the sales value minus the amounts owed on the mortgage(s).
As part of pre-bankruptcy planning, you will want to have a real estate broker give you a written opinion as to what they think your home would sell for. Most real estate agents provide this service free of charge, and it will be used as evidence as to the value of the home, when the bankruptcy case is filed.
Tenancy By The Entirety
Another way for keeping your home in bankruptcy is by utilizing Tenancy By The Entirety to protect your equity. You have a Tenancy By The Entirety when you purchase property in North Carolina as a married couple, and both of your names appear as Grantees on the deed. Property owned as Tenants By The Entirety is afforded an unlimited exemption except as to joint creditors of both husband and wife.
A common instance when Tenancy By The Entirety is utilized is when one spouse has the majority of debt, and is filing bankruptcy without the other spouse joining in on the filing. Provided the unsecured creditors of the filing spouse are his creditors only—and not joint creditors of both spouses—those creditors will not have access to the equity in the home in a bankruptcy filing.
Unexempt Equity In Bankruptcy
In the event you have ‘too much’ equity to protect all of it in your bankruptcy filing, you are not precluded from filing. You and your attorney will simply have to assess the amount of unexempt equity and decide whether Chapter 7 or Chapter 13 is the right chapter for you.
If you have unexempt equity in a Chapter 7 and you want to keep your home in bankruptcy, you will need to be prepared to pay the Trustee the amount of unexempt equity, or some negotiated amount based on the unexempt equity. This is not an option for all individuals, but it is worth noting the Trustee will typically allow a six to nine month repayment period in such instances.
It is not uncommon to move forward with a Chapter 7 despite having a small amount of unexempt equity. Your bankruptcy lawyer will prepare you for the negotiation with the Trustee and make sure your expectations are in alignment with the rules of bankruptcy.
The Chapter 13 Equity Option
If you have a significant amount of unexempt equity in your home, and you are unable to pay the Trustee over a six month period, you can certainly consider filing Chapter 13. In a Chapter 13, so long as you pay the court the unexempt equity over a five year (60 month) period, you have met your burden to unsecured creditors and the home is yours to keep. We have written more about Chapter 13 payment calculations in our article How Much Will My Chapter 13 Payment Be? Your unexempt equity is only one factor which will ultimately determine your monthly Chapter 13 payment.
Speak With A Bankruptcy Lawyer Today
If you are considering filing bankruptcy and you are concerned with whether you will be able to keep your home, we’re here to help. You can call us at 704.749.7747, or click HERE for a free consultation. If you’d like to meet Chris Layton, you can watch a one minute introduction video to see if you might want to work with us. We know you have choices. We hope you choose Layton Law.