If you have been reading the blog and saw our article on keeping your house when you file for bankruptcy, you saw that you are allowed to keep over $20,000 in equity in your residence, double that if you are married and both of your names are on the deed.
In my example in the last article, the house was worth $100,000 and there were liens of $60,000, giving the house equity of $40,000. This worked out well, as the husband and wife were allowed to keep their house in the bankruptcy because the Bankruptcy Code allows them to keep equity of about $44,000.
But what if they thought the house was worth $130,000? With $60,000 in liens, it would seem like they have too much equity ($70,000) to allow them to keep their house. What can they do?
Many people think their houses are worth more than they are really worth. Why is this? One reason is because there are often defects in the house that we ignore since we live there, but a potential buyer would not ignore, and these defects reduce the value of a house. Second, most of us would like to think that our houses are worth a decent amount of money. After all, it’s our house! So sometimes we overestimate its value to someone else. Third, most of us who are not real estate professionals often just don’t really know what the real value of our house is.
Fourth, and perhaps most important and certainly the closest to our heart, we have an emotional attachment to our house. It’s understandable. We live there, sleep there, share meals and precious family time there. A home is full of memories. Those memories will inflate the value of the home. That’s why an owner can not be expected to give a realistic and accurate value to their home.
In these situations, we ask our clients to get a market analysis from a competent real estate agent (often free) or to get a certified appraisal (between $200 and $400). Then we have a better idea what we can do for them under the Bankruptcy Code.
In this example, let’s say a licensed appraiser went out and looked at the house. The appraiser might see there are roof issues, or the furnace is in poor condition, or the paint is peeling from the outside, or there are leaks in the basement, or a number of issues that the clients really didn’t think about. And the appraisal came in at $95,000, certainly less than the $130,000 that the clients thought. This should allow the clients to file for a Chapter 7 bankruptcy, or reduce the amount of money they would have to pay back in a Chapter 13 bankruptcy reorganization.
So if you are thinking that your house may be worth too much money for you to consider filing for Chapter 7 or Chapter 13, think again. Maybe you are right, but wouldn’t it be good to find out for certain? Let us help get you an answer.