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Keeping a home in bankruptcy

On Behalf of | Mar 8, 2021 | Blog, Chapter 13, Chapter 7 |

Bankruptcy is a legal procedure that absolves the debtor in Durham, NC, of certain unsecured debts. Debtors often wonder about the fate of their home in bankruptcy, which depends on the type of bankruptcy. It is possible for debtors to keep their home if they meet certain criteria.

Assets in Chapter 7 and Chapter 13

Under Chapter 7 bankruptcy, a debtor must allow the court to sell non-exempt property to pay creditors. Non-exempt property commonly includes assets the debtor doesn’t need to live, such as jewelry, a second vehicle, or a vacation home. Exempt assets include primary homes, a primary vehicle, clothing, and essential work tools.

Chapter 13 enables the debtor to devise a court-approved payment plan to pay creditors over several years, which is commonly three to five years. 13 doesn’t require the debtor to relinquish assets as long as they keep payments current. It gives the debtor time to catch up on payments, allowing them to keep their home.

Homestead and wild card exemptions

Under the homestead exemption, equity may help debtors who still have a mortgage or liens on their home. Equity is determined by subtracting the amount of loans and liens on the property from the fair market value of the home.

If a home has a market value of $50,0000 and a mortgage of $35,000, they have $15,000 in equity. North Carolina caps the home exemption at $35,000, so the debtor could likely keep the home in this case. In Chapter 13, the debtor pays the nonexempt equity through the payment plan.

North Carolina also has a wild card exemptions up to $5,000, which debtors may apply to non-exempt assets. However, the exemption does not apply to assets purchased within 90 days of the bankruptcy petition.

Bankruptcy laws are commonly too complex for debtors to handle things by themselves. If a debtor has questions about exemptions, they should consult a lawyer.


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