When many people hear or think bankruptcy, they imagine losing all of their belongings, money and sitting on the curb without a place to live. The truth is that you do not lose everything when you choose to file for bankruptcy and that you could even protect some or all of your nest egg through something called the homestead exemption.
Basically, if your home is worth more than the debt you owe the mortgage lender, a homestead exemption can be utilized. With Chapter 7 bankruptcy, if the homestead exemption covers all of the equity, the trustee will not sell your home. With Chapter 13 bankruptcy you would be able to keep your home but will be responsible for paying your creditors an amount equal to the portion that is not covered by the exemption over the course of your repayment plan.
Breaking Down the Homestead Exemption
When it comes to bankruptcy, the equity you have in your home is considered an asset like the rest of your property. Protecting all or part of it can be done with a homestead exemption, but the amount you can protect varies from state to state and depends on which type of bankruptcy you file for.
In Chapter 7 bankruptcy, the appointed trustee will sell the nonexempt property, including your house if it has nonexempt equity. The trustee will sell the home, pay off the mortgage and reimburse you for the amount of the homestead exemption. The remaining proceeds would be used to pay unsecured creditors and any fees owed.
If filing under Chapter 13, the trustee will not sell your property. You will be allowed to keep your nonexempt property but you are required to pay an amount equivalent to the nonexempt portion through your repayment plan. If you have a lot of nonexempt equity in your home it could become a problem, and without the proper income to do so the court might not even approve your repayment plan.
Again, homestead exemption amounts vary from state to state. There is a federal exemption system and your state decides if you can choose between the two or have to stick with the state’s amount.
Talk With an Experienced NJ Bankruptcy Attorney
When it comes to you and your financial hardship, preserving your home will most likely be your top priority. The Law Office of Joel R. Spivack understands your need for solid asset protection strategies.
Mr. Spivack has a number of strategies that could help you save your home and get your finances in order. All you have to do is contact him today at 856-488-1200 to schedule a free, in-person consultation.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
