A common concern of everyone is, Can I file bankruptcy and keep the house? This is precisely the main question a new client had when he came in for his consultation this week. Talking to him, I realized that although I beat around the bush in various posts on ohiobankruptcysource.com, I never really answer this important question.
I am going to share with you the analysis I do when I look at your house from a chapter 7 bankruptcy perspective to decide if you will be able to file bankruptcy and keep the house.
Learn the Value of Your House
At your meeting of creditors your chapter 7 trustee will ask you:
1. How much did you pay for your house?
2. How much is it worth now?
3. What are houses in your neighborhood selling for?
For bankruptcy purposes market value is what is important. Many have no idea how much their biggest asset is worth. At best they are aware of the tax value of the house which is different from market value. Tax value is normally lower than market value. The easiest way, short of a formal appraisal is to go to zillow.com. Enter your address and it will produce a map of the average market values for you street with an aerial view of your house and yard. Many bankruptcy trustees use this as a starting point..
List Your Liens
Next you need to know what liens are against the house. These encumbrances can take the form of:
1. First Mortgage
2. Second, Third Mortgage
3. Equity line of Credit—this is no more than another mortgage with a prettier name
4. Liens from Lawsuits
5. Tax Liens
If your house is worth less than what you owe on it, no problem. You just need to decide if you want to keep it
Protect Your Castle
The formula I follow to determine the safety of the house is:
1. Market Value less 10% for costs of sale.
2. Subtract the total liens from the result
3. Subtract the Ohio homestead exemption of $21,625.00 per titled owner from that number.
If this calculation yields a positive number, that is the degree that your house could be at risk by filing a chapter 7 bankruptcy. “At risk” is a relative term. In the 13 years I have been a Cleveland bankruptcy attorney I have never had a client file bankruptcy and not keep the house unless that was the intent from the start.
Trustees have the power to sell real estate, and at times they do. But only if there is enough non-exempt equity.
Picture by iStockPhoto.
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