Equity in Home

[howdidithappen]

Does anyone know why the equity in your home is important if you file Chapter 13?

[SinkingFast]

When you file Ch 13, your Creditors have to be paid at least as much $$$'s as they would receive if you filed Ch 7.

For now, let's say you can cover all other property with Exemptions. Your household goods, your vehicles, everything but you home.

If you filed Ch 7, you'd take the fair market value of your home, deduct out your mortgage and reasonable costs to sell. The result would be your equity. Then you'd apply your Homestead Exemption.

If you have enough Homestead Exemption to protect all of your equity, then equity would not be an issue.

BUT,............ Let's say you have $100K in equity and $50K in Homestead Exemption. In a Ch 7, the Trustee could seize your home, sell it, and split $50K in proceeds amongst your Creditors.

So, in a Ch 13, in the 2nd scenario, your Creditors would have to be paid at least $50K thru your payment plan.

That's the importance of the equity in your home in a Ch 13. Home Equity can possibly be a basis for the amount Creditors will be paid thru your plan.

[DeadManCrawling]

Important considerations for equity questions:

What state are you in? Your location determines allowable exemptions. In Florida, where I live, ALL home equity is exempt, if you have lived here long enough. It is a good thing, and a bad thing. Many people in the past have robbed people or companies blind, purchased a multimillion dollar home and declared bk here.

How long have you lived there? You must have been in the home for the required period before bk. One thing Florida has to prevent the above scenario now is a length of residency requirement of 3 and a half years or so.

Are you filing jointly or single? I never looked into this, as our equity was covered. Can you DOUBLE the equity if filing married?

Finally, if title is held in a "Tenancy By the Entireties" (not all states rcognize this) and you are filing ALONE, creditors cannot take the home under any circumstance. TBE is a legal principle that essentially means your spousal rights to a property may not be violated. That is, your wife's right to the home would be illegally interfered with if the creditor's took your equity in the home. It would interfere with HER equity, and therefore not be allowed.

I have heard of people who filed singly. One spouse files first, the other within a year or so, wipe away all debts individually, and were able to keep the house due to the TBE situation. Do NOT try this without talking to attorneys, if it is something you may be able to do.

But, if you file jointly or even singly but at the same time, they CAN bite your equity.

This can be a complex subject, depending on your state. Let us know where you are located, and how long you have been paying the mortgage, and maybe we can help a little more.

In any case, make darn sure you ask an attorney about this. You would hate to put your most valuable asset at risk based on our advice, no matter how well considered and well intentioned it is.

Welcome to the board,

-dmc

[howdidithappen]

Am a single mom

three kids - (yes, divorced number of years) live in NJ. If I have about $150K in equity how does that apply? What is the Homestead Exemption? Thanks for all your help!

[howdidithappen]

PS Forgot to ask in my post above

Is there a lien placed against the equity in your house????