Secured Claim v. Exempt Property

[PJP]

So Here is a scenario.

The amount of mortgage on a house is 200K. The market goes down and the debtor files a bankruptcy. At the time of petition filing, the house is worth 150K. The debtor's state has homestead exemption amount of 3K and he has an equity of 3K in the house. There are no other judicial liens or second mortgages. After bankruptcy, will the lender get 150K or 147K? In other words, will the debtor get his 3K exemption in this case?

[SMinGA]

If you owe $200k and the house is valued at $150k, you do NOT have $3k equity.

Exemptions are to protect things of value that you own. For a house, you exempt equity. If you have no equity, there is nothing to exempt. That is the scenario you described: you owe more than the house is worth.

If you let the house go in bankruptcy, the net sale proceeds go to the lender up to the amount owed. If it sells for more, you get the next $3,000. Anything over that goes to the trustee to distribute to creditors.