too much equity?

[NR08]

We passed the means test but we have too much equity in our home. We owe $80K in unsecured debt. Our home is worth $275K (priced at quick sale value) and we owe $191K leaving $84K equity. My question is, do you subtract the exempt amount ($20,000 for me and my spouse for a total of $40K) from the equity of $84K to come up with $44K in equity? Since that is less than what we owe, can we file ch 7 and not lose our house?

[JRScott]

I don't think so.

If you cannot exempt the full equity of the home the Trustee will over either for you to surrender the home or to redeem the home. In your example without knowing more details to redeem the home you'd be in a Chapter 13 with a payback of at least 44k spread over the time of the payback period (probably 5 years).

[ansky0007]

We passed the means test but we have too much equity in our home. We owe $80K in unsecured debt. Our home is worth $275K (priced at quick sale value) and we owe $191K leaving $84K equity. My question is, do you subtract the exempt amount ($20,000 for me and my spouse for a total of $40K) from the equity of $84K to come up with $44K in equity? Since that is less than what we owe, can we file ch 7 and not lose our house?

You will need a good lawyer.. A good laywer will work it out the following way atleast this is how they are doing ours.

Your Homes worth $275k, If the trustee sold it it would cost them approximately 10% so that leaves you with $247,500. If you are both filing and you state allows the federal $20k per person exemption you can then deduct $40k making it $204,500. If you owe $191k that would leave you a difference of $13,500 that you will need to come up with or you will have to give up the house.

Are you sure the home is worth $191k, Did you get a licensed appraisal on it?

[NR08]

It's actually worth more. We paid $305K in 2006. It was appraised at the time for $314K. We're lowering it to $275K because of the bad economy. I don't know if we can attempt any lower. My lawyer did suggest something along the lines of $250K but I personally think that's a stretch and the trustee may be dubious.

The problem with the ch 13 is we have no disposable income, we can't afford any payment. I think we're stuck with no option other than to sell our house.

[BKParalegal]

Instead of guessing on the value of your home, do one or both of these things. Go to your county's appraisal district website and find out what the county valued your home at(that is unless you have a copy of it that they have sent you) and have a real estate agent do a CMA/BPO on your home. Most (all) will do it for free, because they are hoping to get a listing out of the deal. The problem is they will over inflate the value to get you to sign with them, so either tell them you need a quick sale (30-345 day sale price) or have a friend in the RE biz do it for you and have them give you the lowest value possible.

Good Luck

[ansky0007]

It's actually worth more. We paid $305K in 2006. It was appraised at the time for $314K. We're lowering it to $275K because of the bad economy. I don't know if we can attempt any lower. My lawyer did suggest something along the lines of $250K but I personally think that's a stretch and the trustee may be dubious.

The problem with the ch 13 is we have no disposable income, we can't afford any payment. I think we're stuck with no option other than to sell our house.

Dont sell the house... If it comes to it let the trustee take the house from you and let them sell it. You are still entitled to your $40k exemption and if they sell it they are required from my understanding to give that money back to you so atleast you will have some money towards your fresh start.

[Tbornetun]

If you paid $305k in 2006, I doubt it is worth $275 today. The home values in our area have been cut in half over the past couple years. $300k homes are now worth $150k. Do some research as BKparalegal stated above. Sad to say, but your house may not be worth what you think it is.
We usually always go with the tax value for a home when completing the petitions. If the tax value seems unreaonable we have a local agent do a market analysis. The amount a house was worth a couple years ago means NOTHING today.

[NR08]

I took the advice (thanks!) and did a search. The PVA is listed as $305K. I didn't realize our house is actually valued at more than $50K than the rest on the street. If we claim it's less than $305, do we have to prove it to the trustee? Our lawyer implied he wouldn't question it but what if he does?

[ansky0007]

I took the advice (thanks!) and did a search. The PVA is listed as $305K. I didn't realize our house is actually valued at more than $50K than the rest on the street. If we claim it's less than $305, do we have to prove it to the trustee? Our lawyer implied he wouldn't question it but what if he does?

In the worst case scenario the trustee can slap a For Sale sign on your house and see what offers they get.

[Tbornetun]

In the worst case scenario the trustee can slap a For Sale sign on your house and see what offers they get.

My guess would be none at this stage in the game.


I would have a local realtor do a market analysis. Chances are that the $305k value is out of whack.

Wouldn't hurt to check.

[happy_ira]

You should have an appraisal done by a licensed appraiser. Usually costs $50-$200 depending on where you are. I needed one done on my property as the bankruptcy trustee wanted to be sure there was no equity he could get at (there isn't; the mortgage is very upside down). Most appraisers have "wiggle" room in their valuations as they are somewhat subjective. If you submit the official appraisal (usually a several page document signed by a licensed appraiser), I do not believe the Trustee will question it. Based on the numbers above, you should be able to squeeze your exemption into the equity that pops out of the appraisal. The recent economic downturn and mortgage crisis definitely works in your favor in this case.

(Not sure where you are, but if you are in the NJ/NY/CT area, I have the name of a great appraiser who is very reliable and very quick. Message me if you want his name/number.)