Equity in Home the Trustee Can't Get

[Dollar Bill]

I have a question regarding equity in my home.

Say my home is worth $597,000 and I owe 577,000. On paper there is $20k of equity. In order for a trustee to tap that equity they'd have to higher a realtor etc etc and end up owing more than the payoff and would not be able to sell my house. Wouldn't be worth it for them to go after.

We have a wildcard exemption in CA. 21k per person or so.

Say I had 15k in the bank when I file. My question is:

Does someone here know or think the trustee will ask or make me use my wildcard toward protecting the 20k that I supposedly have in the house?

If I have money in the bank, I'd like to keep it. I would say ...."well sell the house if you can." The trustee would know that he/she cannot sell it and wouldn't go after it.

BUT do you think they would ask me to protect that 20k with my wildcard and ask me to write them a check for all the money in my acct?

I hope I am being clear hear. I am days away from retaining my atty.

Please advise.

[HHM]

Umm, why would you not simply use the homestead exemption for the home. I guess I am not understanding why you would have to apply the wild card exemption to the home in the first place.

[monkatom]

I believe the OP wants to use the wildcard exemption to protect his cash in tha bank and take the chance that the trustee will leave the house alone??

[krielly]

But he has a homestead exemption in addition to his wildcard exemption. I think CA is around 50K.

Should be able to protect both the equity and the money...........

[monkatom]

Actually I believe the homestead exemption in CA is 21725 or so with a wildcard or 1100. You can use the homestead as a wild card. This is CA system 2. So total wildcard is around 22725 that can be used for equity, bank account etc. The 50K plus homestead exemption in CA is sytem 1

[HHM]

Ok, I see what you are getting at.

This situation is a weird intersection of legal technicality and practical reality. First, my sense is, in the given market, you are probably over valuing your home. Since you are tight on the equity, you should probably get a full blown appraisal to see where you truly stand with your home equity, if any. I think your first course of action is to try to minimize the equity by getting a good appraisal (hopefully)

Second, this issue raises an interesting question...can a debtor actually elect to not use the home equity exemption in system 2 when there is equity in the residence. The wording of system 2 says you can use the "unused portion" of the home equity exemption. Although system 2 is often described as a general wild card system, it does lay out specific exemptions, its just that in subsection (b)(1), the homestead exemption, and (b)(5) provide that the unused portion of the homestead can be used to exempt "any property" Thus, I think a trustee could make a strong argument that if there is equity in the debtor's home, the homestead exemption MUST be applied to that asset, and only then can the surplus be applied to the section (b)(5) wild card. So, I think a question for your attorney would be, if you choose to use CA System 2 and there IS some equity in the home, can you elect not to cover that equity with the homestead exemption and see if the trustee will simply let things be. I can't imagine that this issue has never been raised, so there is probably case law somewhere on the issue. If I were the trustee, and if the issue has not been decided, I would certainly litigate the issue to get at the $15K cash you have sitting in the bank.

But you are correct, the trustee will have costs of sale and needs to act in the best interests of creditors, given the current state of affairs of the Real Estate Market. The trustee "may" and I stress "may" because I don't know for certain, but because that equity is part of the BK estate, if you don't exempt it, the estate is entitled to those funds, so the trustee "may" be able to get a lien on your property...if that is possible, then your BK case will be perpetually open until the house is sold or otherwise disposed of.

But in the normal circumstance, where a debtor's exemption is not a enough to cover the exemption (rewind the real estate market to 4+ years ago), if the surplus equity was too small, the trustee would simply abandon the equity.

I think your idea is creative, but a little uncertain if it would work.

[Dollar Bill]

Thanks for all of the feedback. I mentioned it to my atty on the phone briefly a few minutes ago. He wants to meet again to discuss it etc etc.

I will need to find out about the homestead exemption and applying addl'l funds toward something else. It's 75k in CA for me. Not sure what it will be raised to if my wife decides to file with me.

Does anyone know if the wildcard exemption is raised when filing joint?

[HHM]

Keep in mind, CA has a 2 system exemption system. The $75K homestead exemption is in system 1, which DOES NOT have a wild card. You have to elect to use one or the systems, you cannot combine aspects of one system with the other. System 2 has a much smaller homestead exemption, something like $20,000.

Another question for your attorney is whether you can double-up the exemptions under system 2. For example, if you both file, you use your $20K to exempt the home equity, and your wife uses here "surplus" home equity exemption to cover the cash. (but I don't know off hand if system 2 can be doubled for couples filing jointly)

[Dollar Bill]

I will ask....Thanks HHM.

[monkatom]

HHM I do not believe the exemption in system 2 is doubled up. At least that is what all three lawyers I spoke to said and on my filling we did not double it up.

[HHM]

HHM I do not believe the exemption in system 2 is doubled up. At least that is what all three lawyers I spoke to said and on my filling we did not double it up.

That is what I thought too, I just wasn't sure off the top of my head.