At every initial consultation I have, one of the first questions I ask is “Do you own any real estate?” More often than not the answer I get is “Well, I own my home, but I don’t want to include that in a bankruptcy case.” However, when a person files a bankruptcy case of any kind, the Court requires you to disclose everything you own (including your home) and everything you owe (including your mortgage), even if you aren’t behind on your mortgage payments and intend to keep making those payments regularly. In the majority of personal bankruptcy cases, people with mortgage payments on their homes continue to make those payments and keep their homes just as though no bankruptcy case was ever filed.
Equity of Your Home
Part of the reason for disclosing your home and mortgage is that the equity a person has in his or her home plays an important role in the bankruptcy process. Equity is the value of property after you subtract the amount of any mortgages or liens on that property. So a house that appraises for $75,000 and has a mortgage on it for $50,000 has $25,000 in equity. For many people, the most valuable thing they own is their home, so naturally the Court will want to know about it.
The Court looks at home equity in different ways depending on what kind of bankruptcy case is filed. In a Chapter 7 case, the Court has the authority to sell property (even your home) if it thinks the property is valuable enough that it could be sold to make a profit. In a Chapter 13 case, the Court doesn’t have the power to take property, but the amount of equity you have in property (real estate and personal property) plays a role in how the court calculates your Chapter 13 plan payments. In general, the less equity you have, the lower the monthly payments the Court will allow. If you have a lot of equity in your home and think it might prevent you from being able to file, don’t worry. You are entitled to exemptions under the bankruptcy laws that can help protect your home equity and personal property.
The methods the Court uses to calculate a Chapter 13 plan or evaluate a Chapter 7 case can be complicated and confusing. Before filing a bankruptcy case, please contact one of our Bond & Botes affiliated offices for a free initial consultation. Our attorneys have the necessary experience to walk you through the bankruptcy process.