Once you file for bankruptcy, all of your assets will be closely examined by a bankruptcy trustee. Whether or not you will be able to keep those assets, such as a second home, is dependent on various factors. If you are concerned you might lose your second home after filing for Chapter 7, here is what you need to know.
What Can Possibly Happen to Your Second Home?
In a Chapter 7 filing, there are usually only two things that can occur with your second home. The first is that the bankruptcy trustee could sell it and use the money earned from the sale to pay on your debts.
A bankruptcy is designed to give you a financial fresh start and the trustee is committed to this idea. To that end, paying off as much of your debts as possible is the trustee's goal which might make it necessary to sell your second home.
The second option is that you get to keep the home. To keep the home, you will have to take advantage of exemptions that are allowed in bankruptcy cases.
How Can You Save Your Second Home?
When you file for bankruptcy, you are given exemptions. The dollar amount of how much you are allowed varies by state.
Exemptions work by allowing you to keep a combination of assets that is equivalent to the amount allowed. For instance, if your home is worth $25,000 and the exemption is $40,000, you can use the exemption to keep your home and still have $15,000 to save some of your other assets.
Whether or not an exemption will be enough to save your second home depends on the amount of equity you have in it. Equity is calculated by determining your home's value. This amount is subtracted from the amount that is still owed on the home and other expenses, such as judgment liens and equity loans.
For instance, if your home is valued at $100,000 and you have a mortgage for $75,000, your equity is $25,000.
If your home has equity, the trustee will decide whether or not it is economically smart to sell the home. The sale of the home has to generate enough money to pay off liens that are owed, the trustee's commission, and the costs related to selling your home.
If there will not be enough money to cover these expenses, you can probably keep your home.
Talk to a bankruptcy attorney (such as Michael Adler) to discuss whether or not your home might be able to save your second home with an exemption. An attorney who also focuses on real estate can help you further explore your options.Share