Posted on: 8 November 2016Share
For some people, the fear of losing their home prevents them from filing for bankruptcy. What they might not realize is that filing for bankruptcy does not necessarily mean that their homes will be lost. If you are considering bankruptcy and worried about losing your home, here is what you need to know.
Can the Homestead Exemption Save Your Home?
In bankruptcy, exemptions are allowed to save some or all of your assets. The exemptions can protect certain assets as long as the combined value for those items is at a predetermined dollar amount. For instance, if your state allows $25,000 in exemptions, you can protect assets with a combined total up to that point.
In some states, there is a special exemption known as the homestead exemption. The exemption is specifically earmarked for the primary residence of a filer. The exemption allows you to exempt some or all of the equity you currently have in your home. The amount of the exemption varies by state.
Whether or not your home is safe from the trustee depends on the amount of equity in your home and the homestead exemption amount in your state. If your equity exceeds the exemption amount, your home could be in danger of being taken by the trustee.
What If the Homestead Exemption Is Not Enough?
All is not lost if your state's homestead exemption is less than the equity in your home. There are a few other ways you can try to save your home, including the use of the wildcard exemption.
The wildcard exemption is only available in some states. It gives you an additional amount that you can use to exempt any assets that you have. You can combine it with other exemptions to protect other assets that exceed the amount already established.
For instance, if your equity exceeds the homestead exemption by $10,000, but the wildcard exemption allows for an additional $25,000 in protection, you can use it to cover the remaining equity.
Another option is to opt to file for a Chapter 13 instead of a Chapter 7. A Chapter 13 would allow you to keep your home, make payments on it, and give you the space needed to possibly negotiate a lower payment with your lender.
Depending on the state in which you live, there could be many more options for you to explore. Consult with a bankruptcy attorney like Demers Gagnier Inc. to find out which options are available to you.