There is a common misconception that when you file for bankruptcy, you will lose your possessions--including your home. This is not true. For the vast majority of homeowners, you can file bankruptcy and still keep your home.
California has two different types of bankruptcy exemption systems. The 704 system is designed to allow Debtors (people who file for bankruptcy) to protect and keep any equity in their home. The equity in your home is calculated by subtracting any liens encumbering your home (first mortgage, second mortgage, HELOC, judgment liens, etc) from the current fair market value of your home.
- For example, let's say the fair market value of your homes is $350,000. (You can get a very rough estimate of your home's market value on several websites, such as Zillow.com or Trulia.com).
- You have a 1st mortgage on the home, and the current balance is $300,000.
- The equity in your home is $50,000 = $350,000 - $300,000
Therefore, when you file for bankruptcy, you will need to protect the $50,000 of equity in your home. When you file bankruptcy, all of your property becomes part of the bankruptcy estate. The bankruptcy Trustee is the person who then steps into your shoes and basically "owns" your property. However, most of your property will be exempt, meaning it is excluded from the bankruptcy estate. So, the $50,000 of equity must be exempted and protected in the bankruptcy.
The 704 system was designed to protect equity in your home. Here are the homestead exemptions and maximum amount you can claim for certain types of Debtors:
- for a single, individual filing: $75,000 limit
- for a married filing or if you live with a family member: $100,000 limit
- if 65 or older or if physically or mentally disabled: $175,000 limit
- if 55 or older, single and earn under $25,000/year: $175,000 limit
- if 55 or older, married and earn under $35,000/year: $175,000 limit
As you can see, most people will be able to keep their homes when filing for bankruptcy. Make sure to consult with an experienced attorney to see if any of your assets are at risk if you do file.
Atlantis Law has experienced bankruptcy lawyers to assist you with the filing process. We will ensure that your assets will be protected so that you will not lose anything. If there are certain assets you cannot protect, we will discuss other options to bankruptcy as well.
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