Can equity be the reason I keep my home in bankruptcy?

Property exemptions differ depending on whether you file for Chapter 13 or Chapter 7 bankruptcy in New Jersey. Chapter 13 exemptions are not as strict, are higher and more flexible than if you were to file for Chapter 7. However, some homeowners cannot resist filing for Chapter 7, which places their property at greater risk of being sold off. However, equity can still help save a Chapter 7 filer’s home.

FindLaw explains the role of house equity in Chapter 7 bankruptcy. Equity is defined as the market value of a house once mortgage balance or home equity loans are subtracted. If the equity in a house reaches the level higher than a bankruptcy exemption will allow, the bankruptcy trustee will determine that the value of the house allows it to be sold to pay off creditors.

However, Chapter 7 bankruptcy filers have a chance to hold on to their homes if the equity in their homes does not reach the exemption level. The truth is that there a lot of bankruptcy filers who do not have much equity in their homes at all. Some even possess negative equity. If this is the case, the trustee will be likely to consider the house exempt and not have it sold.

In the event a trustee does consider the house eligible to be sold, you still have a chance to hold on to your house, but it will come at some cost. If the value of your home is not too high for your personal income to handle, you may be able to pay your trustee the value. In essence, you are purchasing your own residence back from your trustee. In the event you cannot afford the value, the home will almost certainly be sold off.

In some bankruptcy scenarios, a trustee will accept a repayment plan for home equity. You may need to consult with a bankruptcy attorney to understand your options. Because bankruptcies vary across individuals, do not consider this article as legal advice. Read it only for your educational benefit.

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