How to Determine if you can keep your home in Chapter 7 Bankruptcy
Filing for Bankruptcy does not automatically mean that you will lose your home. If the property is your primary residence, then you can likely keep you home if there is under $150,000 equity ($300,000 equity for joint filers) in your, home and you live in New York City.
First, it is important to find out the value of the home. For the purpose of filing for Bankruptcy, we need to determine what is called the Fair Market Value of your home. If the value is not accurate, then your home can be taken by the Bankruptcy Trustee and sold to pay off creditors. For this reason, it is important to get a precise value. There are several free online websites such as zillow.com that can serve as a guide to finding the value of a home but they are sometimes not as accurate as a physical inspection of the home. A Broker’s Price Opinion is another method of getting an accurate number but it is still imprecise. The best evidence for a home’s current value is an up to date appraisal report. Here, a licensed Real Estate appraiser will inspect the property and make a written report on the Fair Market Value of the home. In New York, an appraisal usually costs from $300 to $600, depending on the size of the home.
Next, the amount of debt owed on the home needs to be analyzed. Anyone intending on keeping his/her house in Bankruptcy needs to find out exactly how much money is owed on their residence. It is important to find out how much is owed on mortgages and lines of Credit secured by the house. A current payoff demand letter from the lender is the best way to find out how much is owed on the loan. Additionally, other liens, such as tax liens or judgment liens, need to be considered. If you do not know how much secured debt is owed on the residence then a title report may be needed.
Finally, the debtor needs to qualify for the homestead exemption in New York. Assuming this is the debtor’s primary residence and the home is in New York City then $150,000 of the equity in the home is exempt. If a married couple files jointly and hold the title jointly than there is an available $300,000 exemption.
Once these numbers are determined, we take the Fair Market Value of the home and subtract the amount of secured debt and liens on the home to find out how much equity is in the residence. If this number is less than $150,000 ($300,000 for joint debtors), than the house can be kept in Bankruptcy.
One caveat: if there is a small amount of equity leftover after using the homestead exemption it can still usually be saved. There are broker’s fees and closing costs that should be included in the calculation, which can protect a debtor’s home in Bankruptcy.