Can you keep your home, vehicles, or other large property if you file for Chapter 7 bankruptcy protection? The answer depends on a variety of factors, but one of the most important is actually a calculation. This calculation — which includes determining the equity, what's actually recoverable by the trustee, and exemptions — may sound complicated, but it doesn't have to be.
Here are the four steps to finding out what you will be able to save from liquidation.
1. Determine Property Value
First, what would the trustee reasonably expect to get for the estate if they sell the item? This is generally equal to the market value, which you can estimate for yourself. It's important to be realistic, perhaps even getting the help of a professional real estate agent or appraiser. The last thing you want is to underestimate or overestimate the market value and make the wrong choice.
2. Figure the Equity
Don't panic if the value of your home, car, second home, or some other asset has a high market value. This isn't what the trustee looks at. What matters is the equity you have in that asset. Equity is the difference between what it's worth and what you owe the lender. If your home has a market value of $250,000 but you still owe $221,000 to first and second mortgages, the trustee would only get $29,000 to work with.
3. Estimate Recoverable Amounts
Now that you know the approximate amount of equity, there may be other expenses that must be deducted in the event of a sale. For instance, the trustee may need to pay a real estate agent or auction house to sell the property. What will they charge on average? These fees, as well as encumbrances on the property such as taxes, further reduce what's available to the trustee.
Sometimes, property has some value to the trustee, but the associated costs of selling reduce that available amount to a point where it's not worth it to the bankruptcy estate. It's unlikely that the trustee would go through an entire home sale just to recoup a few hundred dollars for the estate.
4. Compare With Exemptions
Finally, it's time to find out if you can use an exemption to protect the asset. Most states and the federal bankruptcy code provide lists of allowed exemptions from liquidation. For instance, you may exempt the first $27,900 of equity in your primary home under the federal rules. There is also a wildcard exemption of $1,475.
In this scenario, you would be able to exempt the home by claiming these two exemptions (which total $29,375) to cover the $29,000 in equity.
Contact a Chapter 7 bankruptcy attorney for more information.Share
30 June 2023
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