Bankruptcy provides a fresh financial start for people faced with insurmountable debt. Although the bankruptcy trustee has authority to seize and sell the debtor’s assets to pay off creditors, there are federal and state laws that allow debtors to keep certain property or its equivalent value. These are called exemptions, and one of the most common is the exemption that covers all or part of the debtor’s home.
Many homeowners file for bankruptcy have an outstanding mortgage loan on their property. Debtors in bankruptcy may protect their primary residence from seizure by using the homestead exemption in either Chapter 7 or Chapter 13. The exemption is based on the debtor’s equity in the property — that is, the value of the home less the amount of all outstanding mortgage loans. For example, if a home is worth $100,000 and the balance left on the mortgage loan is $80,000, the owner has $20,000 in equity. Georgia residents can exempt up to $21,500 in equity for individuals and $43,000 for married couples.
Homeowners who have less equity than allowed by the exemption and who are not significantly behind on mortgage payments often file a Chapter 7 bankruptcy. These cases are usually completed within a few months and the legal fees and expenses are relatively low. In most scenarios, unsecured debts are discharged entirely in Chapter 7. If the debtor wants to keep their primary residence, they can protect the equity in the home from the trustee by claiming the exemption. The debtor will still have to pay the home loan debt in full over the regular loan period.
Homeowners with substantial equity in their property and those homeowners who are behind on payments usually proceed under Chapter 13. Debtors can generally keep their home by making payments in accordance with an approved bankruptcy plan. The monthly Chapter 13 plan payment covers the arrears plus the principal and interest going forward over a period of years. Most creditors are likely to receive some payment in a Chapter 13 case, and the homestead exemption can affect the amounts to be paid. Chapter 13 cases usually take three to five years to complete. An experienced bankruptcy attorney can analyze your situation and advise you about how to make full use of the homestead exemption.
Jeff Field & Associates is a bankruptcy and debt relief law firm with six offices in the Atlanta, Marietta and Athens areas of Georgia. If you are deep in debt and in peril of losing your home, contact us online or call 404-381-1278 for a free initial consultation.