Over the past 36 years the biggest fear that my clients have is losing their home if they file a chapter 7 bankruptcy.
First, we have to look at the entire picture.
If you are behind on your mortgage and you want to keep your home, then you should file a chapter 13 individual reorganization and not a chapter 7 bankruptcy. The only time I will agree that someone can file a chapter 7 bankruptcy if they are behind on their mortgage is if they want to surrender their home and get a fresh start. Please note that you should stay at the home as long as you can, rent free, to save money for future expenses and not to have the home vandalized. Vacant homes lead to vandals.
The first thing that I have to know is the value of your home. Everybody who is in need of filing either a chapter 7 or chapter 13 bankruptcy must get a cma to show the value of their home plus a deed to show who owns the property.
If your home is worth $250,000 and is in Joe and Jill’s names, then under federal law, they would be entitled to
an exemption of $50,300 under 11 USC 522(d)(1) since the New Jersey exemptions are minimal. Also, the couple must reside in the home since you can’t take the (d)(1) exemption if you don’t use that home as your residence.
If Joe and Jill owe $180,000 on their home and are current on the mortgage payment with Wells Fargo, they would not lose their home if they filed a chapter 7 bankruptcy based on the following formula:
FMV: $250,000 minus 10% cost of sale of $25,000 equals $225,000 minus the mortgage payoff of $180,000 equals $45,000. Since your exemption exceeds the $45,000, you would not lose your home if you are current on the mortgage since there is no non-exempt equity.
The chapter 7 trustee would then file a Notice of Abandonment. This does not mean that you have to abandon your home. It means that the trustee is removing it from the bankruptcy estate and will not sell your home.
However, if Joe and Jill’s home is worth $300,000 and they wanted to file a chapter 7 to eliminate credit card debt, personal loans and medical bills, they could lose their home.
Under the previous formula the following is the analysis:
FMV $300,000 minus 10% cost of sale of $30,000 equals $270,000 minus the mortgage payoff of $180,000 equals $90,000. If you subtract the exemption of $50,300, there would be $39,700 in non-exempt equity. In this hypothesis, a chapter 7 trustee would then move to sell their home.
At Taieb Law in that situation, we would advise the couple to file a chapter 13 to protect their property whereby they would have to pay the non-exempt equity over five years in a chapter 13 plan.
As we have emphasized on several occasions in the past, if you file chapter 7, if you exceed your exemptions, then a trustee could sell any non-exempt property including automobiles, whole life insurance policies or any other property which is part of the bankruptcy estate. Therefore, it is imperative that at Taieb Law, we know the whole picture to protect your property.
There is also one other very important point to consider if you file chapter 7 and own a home. Just because you give the chapter 7 trustee a market analysis that says $180,000 they can always get their realtor to challenge your valuation and still try to sell your home.
We had one case where our clients valued their home at $100,000 and the trustee’s realtor had a value of $200,000. Only after the trustee’s realtor saw the home and realized that there were issues that lowered the value, then the trustee abandoned his interest in our client’s real estate.
Thus, if you have a home and you want to protect it, you must not only do a thorough analysis of how much the home is worth but look at all your other personal property to make sure that it is exempt under the law. Otherwise, you should file chapter 13 bankruptcy to protect non-exempt property.
If you are sick, stressed out, or losing sleep over your debt, we can help you save your property and get a fresh start by filing a bankruptcy for you. For more information go to www.bankruptcywithcare.com or call us at (856)235-4994.
AGAIN, PLEASE NOTE WE ARE OPEN FOR BUSINESS TO HELP ANYBODY WHO IS IN FINANCIAL DISTRESS AND CAN HELP YOU EITHER IN OFFICE OR VIRTUALLY. PLEASE ALSO NOTE THAT STEVEN N. TAIEB, ESQUIRE HAS BEEN VACINATED.
Steven N. Taieb, Esquire has been a south jersey bankruptcy attorney for 36 years and is board certified in consumer bankruptcy law by the American Board of Certification which is accredited by the American Bar Association.
We are a debt relief agency. We help people file for bankruptcy relief under the bankruptcy Code.