What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is one of the most common options for bankruptcy. It is also known as the “liquidation bankruptcy” as it can help debtors to wipe away debt and begin with a clean slate.
One of the first things that happen when you file for Chapter 7 is the courts will place an “automatic stay” on your current debts. This action prohibits creditors from further attempts to garnish wages, collect the debt, repossess property, foreclose on your home, shut off utilities, and more. Some or all of your assets will be sold or liquidated to satisfy your obligations.
Each state will provide certain portions of your assets exempt from liquidation. This article will discuss those exemptions and what they can mean for you.
What is Exempt Home Equity in Chapter 7 Bankruptcy?
Exempt Home Equity or the Homestead Exemption is appealing to debtors considering filing for bankruptcy for many reasons. Why is it important?
The homestead exemption is a valuable tool for those filing for bankruptcy. It allows those eligible to protect some or all of the equity they have in their home rather than liquidating it to pay off debts. All real property may be eligible, such as a home, a condo, or a mobile home.
How much you can protect depends on which exemption option you want to utilize and are eligible for. In the state of New York, you can follow the federal homestead exemption, or the state of New York, whichever has the best outcome and that you are eligible for.
Important Factors to Consider
Each county has an exemption cap, so you will want to review the current amount to make an informed decision. If you plan to utilize other exemptions, it’s important to understand that you can not mix federal and state exemptions. You will want to closely analyze which assets you most wish to protect and which exemption plan will help you best.
Timing is of the essence if you wish to pursue the New York exemption route. The reason for this is if you have not resided in New York for at least the last 730 days, you are not able to utilize New York’s exemptions and must follow the exemptions available through the state you previously lived in.
Also, to be eligible for the New York state homestead exemption, you must have owned the home for at least 1,215 days or roughly 3.5 years. These provisions are subject to change, so it’s essential to understand the current requirements.
Examples of the Homestead Exemption
Let’s say, for example, that you currently owe $300,000 on your home, but your home is worth $400,000. If the county you reside in has an exemption limit of $100,000 or more, your home is safe in most cases from liquidation, and you can rest easy knowing that it can’t be foreclosed or liquidated to pay off debts.
If your exemption is less than $100,000, this may result in the trustee needing to sell the house, using the difference to satisfy creditors.
Each situation will be specific to your debt vs. assets and should not be used as a rule. It is crucial to review with an experienced attorney what your state or federal options are so you can make the best decision for your family.
How Do Spouses Affect the Exemptions?
Between your spouse, yourself, and a trusted bankruptcy attorney, you can determine whether or not your spouse will file a joint bankruptcy.
In many cases, should you file jointly, this may make you eligible for a double exemption amount from federal and state levels if you co-own the property with your spouse.
It is imperative to discuss your specific situation with an experienced bankruptcy attorney to determine what may be the best option for you. What may make the most sense for you may ultimately differ from a friend or relative with whom you have discussed your concerns.
What Can a Bankruptcy Attorney Do For Me?
Bankruptcy attorneys have experience in navigating the complexities of the process and can “speak the language” necessary for a desired outcome. One of the many overlooked aspects of filing for bankruptcy is the amount of required paperwork and the associated timelines. If you miss a step, you may be forced to start over, and if you face bankruptcy, you know that every second counts.
You’re not expected to be skilled in bankruptcy laws and procedures. That is what decades of experience have helped our team to provide you with. We will closely analyze your situation, review your options with you, and provide a strategy you are comfortable with moving forward.
We respect that considering the option of bankruptcy doesn’t come lightly, and you have likely been wrestling with the concept for a while. It doesn’t have to be as stressful and life-changing as you may think. There are several options to review before deciding which is best for you, and we are here to discuss those options with you confidentially.
Contact our office at (718) 522-1117 to learn how we can best help you and your family moving forward. Don’t remain “stuck” in a never-ending cycle of stress over debts. Take action now and create a plan that you can stick with and before you know it, you’ll look back and be proud that you took the steps you did promptly and moved forward to the next chapter of your life.