Are We At Risk Of Losing Our House If We Declare Chapter 7 Bankruptcy?

When attempting to determine the chance that a specific item would be sold off throughout a Chapter 7 procedure, it is necessary to conduct an exhaustive review of the debtor’s assets. In particular, when considering the debtor’s home with help from a bankruptcy attorney.

State And Local Property Tax Relief

A debtor can protect up to $22,975 in home equity under the “homestead exemption” provisions of 11 USC 522(d)(1). If the husband and wife file for bankruptcy together, they can claim the homestead exemption, worth up to $45,950.00.

A debtor’s ability to exempt their primary residence under 11 USC 522(d)(5) “wild card” exemption is diminished if they also need to exempt other assets. A debtor may borrow up to $11,500.00 from the homestead exemption if the wild card exemption is needed to protect assets worth more than $1,225.00. In most cases, the assets that qualify for the “wild card” exemption are those with a value that exceeds the applicable statutory exemption, such as funds in a bank account or an expected tax refund, stocks, or investments outside of a qualified retirement plan, or assets with a high market value.

Household Exemption

A debtor need not claim the federal bankruptcy exemptions. A debtor can use the more generous Michigan exemptions for their primary residence. In contrast to the federal wild card exemption, however, most debtors do not choose to employ the Michigan exemptions. To learn more about what it means to elect state exemptions and whether or not it is good for you, it is best to speak with a knowledgeable bankruptcy attorney.

Examining The Trustee’s Approach To Liquidation

To decide whether to manage or liquidate an asset, the Trustee will first ascertain its equity (market value less any liens). After estimating or calculating the equity, the Trustee will examine the exemptions to determine how much of the equity is exposed. A Trustee won’t sell a home unless they have enough money to cover all the liens, the debtor’s exemptions, and the costs of selling it, plus a little extra.

Finally, remember that an asset has unprotected equity does not mean it will be sold. Most of the time, a Chapter 7 Trustee will attempt to settle with a debtor to prevent the need for liquidation. Paying the Trustee an amount at least equivalent to the value of the nonexempt portion of the equity is typical of settlements of this type. One can do this by making a single large payment or by making smaller installments over time.

Be aware that if you file for Chapter 7 bankruptcy, the Trustee will look at your recorded deed and mortgage(s) to determine whether any flaws would allow them to eliminate the lien. By evading a lien, you can quickly build up a lot of equity and put the debtor at risk of losing their house. This is only one of the numerous explanations for why you should seek the counsel of a competent and thorough bankruptcy lawyer.

Final Thoughts

You can get a better idea of whether or not liquidation is likely for you by sitting down with an experienced bankruptcy attorney and discussing your assets in depth. Chapter 13 bankruptcy and debt settlement are two methods a lawyer can explain to you to help you get out from under your debts without selling off your possessions.

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