Does a Home With Zero Debt Affect Chapter 13 Bankruptcy?
Debtors often ask Santa Ana attorneys whether owning a home free and clear impacts Chapter 13 bankruptcy. Can a Debtor keep their home if they have too much equity? If there is no mortgage on the property, the debtor can keep the home after filing Chapter 13 bankruptcy. However, the debtor might have to pay additional money to his or her unsecured creditors in the bankruptcy repayment plan.
Debt repayment alterations due to home ownership
If your home is free and clear of any liens and mortgages, there is a high probability of liquidation in Chapter 7. This means that the bankruptcy trustee will sell your home to pay your creditors. This is the result of having considerable equity in his home.
However, there is no liquidation in Chapter 13 allowing a debtors to keep their home. This is true even if the home is not completely exempt. The trade-off one makes when filing Chapter 13 bankruptcy is that he must pay unsecured creditors like credit card issuers an amount of money equal to the value of non-exempt assets.Therefore, if the debtor can’t exempt every last penny of his home equity, he will likely have to pay a dividend to each unsecured creditor.
The issue of home equity
To calculate equity, you subtract the balance of liens and mortgages from the value of the home. Those who own their home free and clear have a equity equal to the home’s value. The argument is that debtors could sell their home outside of bankruptcy to pay off their debts. Allowing them to keep their home without paying back any debt is unfair to creditors and people in general who are paying the debts.
In fact, some people resort to credit cards for living expenses while redirecting cash to pay off their home mortgage. The creditors must be repaid (all or in part) in order for the bankruptcy to be processed.
Exempting home equity
If a debtor can exempt the full value of his home, it is unnecessary to pay more to unsecured creditors simply because the home is owned free and clear. Be sure to consult with an experienced Santa Ana bankruptcy attorney to determine whether an individual can exempt the entirety of his or her home’s equity.
The bankruptcy attorney will analyze the client’s unique situation and explain the nuances of the state’s complex exemption laws.
Give serious consideration to all bankruptcy options
Chapter 13 bankruptcy might not be the best option for you. Do not hesitate to ally with a knowledgeable Santa Ana bankruptcy attorney to determine the best course of action. Your Santa Ana bankruptcy attorney will review your financial situation, explain the benefits of each type of bankruptcy and help you determine the most prudent approach. This is the in-depth legal assistance you need to emerge from your bankruptcy in the best possible financial state.
NOTE: This is for informational purposes only and does not constitute legal advice.