For many people, one of the greatest days of their life is when they are handed the keys to their very own home. That’s because they finally have a place a place to build memories and put down roots in the community.
Interestingly enough, it’s for these sentimental and otherwise perfectly logical reasons that many financially troubled people are reluctant to consider Chapter 7 bankruptcy. In other words, they are concerned that they will somehow see their family home seized and sold to pay down debt if they file.
It’s important to understand, however, that bankruptcy law provides what are known as exemptions, which are essentially mechanisms designed to help people hang onto property — both real and personal — with which they are understandably loathe to part.
For example, there are homestead exemptions at both the state and federal level designed to protect the equity in a home. What this means is that if the equity in a home — i.e., the amount remaining after subtracting the current amount of a mortgage from the current home value — is below the applicable homestead exemption’s monetary threshold, it cannot be taken by the bankruptcy trustee.
By way of example, if a person owns a home worth $200,000 and has an outstanding mortgage balance of $100,000, they will be considered to have $100,000 in equity in their home. If the applicable homestead exemption is $150,000, then the person can protect their home from seizure.
In our next post, we’ll discuss the two separate homestead exemption options designed to protect the equity in a home here in Arkansas, and some other important issues of which prospective filers should be aware.
If you would like to learn more about Chapter 7 bankruptcy or have questions about bankruptcy exemptions, consider speaking with a skilled legal professional as soon as possible.