Filing for Bankruptcy During an Inflated Real Estate Market

Home prices in Georgia and across the country rose steadily through 2023 and show no signs of abating, despite a surge in mortgage interest rates. This is due to a shortage of housing inventory caused in large part by older Americans buying up properties, many for investment purposes. But whatever the reasons, an inflated residential real estate market has profound implications for homeowners seeking debt relief through bankruptcy.

Bankruptcy is a legal process that allows individuals to obtain protection from creditors by liquidating assets (Chapter 7) or by restructuring their debts (Chapter 13). The homestead exemption is a statutory mechanism that can protect a certain amount of equity in a homeowner’s primary residence during bankruptcy proceedings. This exemption recognizes the fundamental importance of providing individuals and families with a secure and stable place to live, even in times of financial distress.

An increase in home value due to inflation can actually make it more difficult to protect a home during bankruptcy. The Georgia homestead exemption is $21,500 for a single person or $43,000 for a married couple. Those limits remain static even as home prices rise. That means a homeowner will usually possess far greater home equity than the exemption would cover. In a Chapter 7 case, it is likely that the bankruptcy trustee will sell the home, pay off the mortgage and use the balance of the sale proceeds to satisfy creditors. The homeowner is left with only the exempted amount shielded.

A better alternative for protecting a home in an inflated market may be Chapter 13, which allows for a reorganization of debts through a manageable repayment plan. Chapter 13 is an available remedy for debtors who have sufficient disposable income, after meeting monthly living expenses, to make monthly payments to creditors. However, Chapter 13 also requires the debtor to pay off the amount of home equity not covered by the homestead exemption. If the amount of equity is too high, the entire repayment plan might be unmanageable. That may mean losing the home.

If you are a homeowner in financial distress, and you have a high level of home equity that would make the use of the homestead exemption or a Chapter 13 plan ineffective, you will need to consider other options for debt relief. An experienced Georgia bankruptcy attorney can help devise solutions that might allow you to keep your home, such as a mortgage loan modification or a short sale.

Jeff Field & Associates helps consumers throughout Georgia obtain debt relief through Chapter 7, Chapter 13 and other remedies. We have offices in Scottdale, Gainesville, Marietta, Lawrenceville, Douglasville and Athens. To schedule a personal consultation, call 404-381-1278 or contact us online.