Asaph Abrams Attorney at law

San Diego Bankruptcy

bankruptcy attorney san diego

I have equity in my home. Will I be able to keep it if I file for bankruptcy?

No property is more sacred than one’s home, one’s castle.  (Unless you’re a car person, I guess.)

In terms of liquidation, it doesn’t really matter how expensive your home is.  Bankruptcy is only concerned with your interest in the property: your equity.  This is not a common problem these days.  The precipitous drop in home values has made equity a scarce thing.  But if you do have equity, here are some figures. The equity protected can range from $75,000 to $175,000.  Determining factors include whether it’s a joint or single petition, type of home ownership, petitioner’s age, date of home purchase, source of funds for the purchase, disability status, and income.  If you do have equity to protect in your home, despite the drop in home values, there’s still a good chance you won’t lose it if you file for bankruptcy.  Note: if you’re protecting substantial home equity, you can’t exempt as much personal property as a non-homeowner.

The following instances arose pursuant to downsizing in the paper industry. Figures reflect the pending year 2010 increase in the homestead exemption amounts:

Example 1: Jim, a paper salesman, inherits his parents’ home, worth $165,000.  Jim and his wife, Pam take out a $65K home equity line.  When J&P file a chapter 7 bankruptcy, their $100K  homestead exemption protects all the equity in the home and they keep it.  (Note, homestead exemption amounts increase in 2010.  The above figure is the updated amount, but if you filed for bankruptcy in 2009 the exemption amount is less).

Example 2: Happily married, Dwight and Angela purchase a beet farm upon which stands a $250,000 home.  Their mortgage balance is $75K.  When they fall behind on their mortgage, they could petition for chapter 13 bankruptcy to catch up on the arrears.  However, they’ve decided to forego the property.  The chapter 7 bankruptcy trustee sells the home and pays the mortgagee bank its $75K.  The trustee also pays D&A the $100K they’re entitled to in home equity.  The trustee distributes the remaining $75K (less closing, sales and her trustee fees) to D&A’s creditors.

What happens if my property is liquidated in a chapter 7 bankruptcy?

The bankruptcy exemption protections still apply.  If a property is sold, you’re still entitled to the exemption amount taken from the sale proceeds. 

What if my equity is right near the bankruptcy exemption limit?

In weighing whether to sell the property, the bankruptcy trustee will consider the practical implications of sale and trustee commission costs.  Those factors essentially increase the amount of equity.  This is particularly significant when it comes to the high sales and closing costs for homes.

Also, a non-exempt property may have no market value and not be readily sold.  The bankruptcy trustee might then abandon that property and let you keep it.

I am upside down on my mortgage. Can I keep the house and file for bankruptcy?   

Sure.  Moreover, if you're behind on payments, a Chapter 13 bankruptcy will enable you to catch up on the arrearage.  However, you'll still be responsible for your mortgage payments.

We are thinking of declaring personal bankruptcy. Should we buy a more inexpensive home and let ours go first?

You'll need to see an attorney before selling your home.  There is no obligation to sell your home.  Even if it's an expensive property, you can keep it if you can afford the payments, and your equity is not beyond the bankruptcy exemption limits: $75,000 for singles, $100,000 for families--- between $146,450 to $175,000 if you're a senior or disabled, though there are other variables to examine. 

General Bankruptcy Questions

San Diego bankruptcy attorney
San Diego bankruptcy attorney

To discuss your particular situation, please call (858) 344-0500 to schedule your free consultation.