The equity in your home refers to the value of your interest in your house. As any attorney will tell you, understanding the meaning of equity is crucial to a successful filing, since exemptions are based on net liquidation value and not asset value. To determine your equity, take the value of your house, subtract the amount of all liens and encumbrances, and the resulting number is the amount of equity you have in your home. With the downturn of the real estate market, many homeowners no longer have any equity left in their home and are actually upside down. The term “upside down,” in real estate law, refers to when the amount of liens and encumbrances against your property exceeds the value of your property. In such a case, you do not need to be concerned with the subject of equity. But if you do have equity, then you'll want to read further.
Can I File Bankruptcy In San Diego If I Have Equity In My Home?
If you have equity in your home, then it is imperative to: (1) determine how much equity you have; and (2) discuss with a lawyer the question of whether or not your equity exceeds the amount of equity you are permitted to have when you file bankruptcy San Diego. If your house has too much equity, the trustees appointed to your bankruptcy case will liquidate (sell) your property and use the proceeds to pay your creditors. Clearly, you don’t want that to happen. So, it cannot be stressed enough, you must discuss with an attorney the amount of equity that exists in your house and the effect it can have on your case and your real estate investment.
If the amount of your equity is within the equity limits permitted by your applicable exemptions, then you can keep your home and the equity cushion that you have in your home. Your exemption limits will depend on whether you are claiming the Federal exemptions or the California exemptions. The California exemptions provide for a much more generous homestead exemption protecting the equity that you have in your property.
Excess of Your Exemption Limits
If the amount of equity exceeds your exemption limits, either under the federal exemptions or California exemptions (depending on which exemptions you choose), the trustee will take control of, and sell, your house. In some cases, if the amount of equity you have in your home is only slightly greater than your exemption limits, the San Diego bankruptcy trustee may not sell your home. Also, you can propose to pay the trustee an amount of money equal to the net liquidation value, that is, the net amount that could be realized if the trustee were to sell the property and pay off all liens and after accounting for costs and expenses of sale.
Do I Need an Appraisal?
Many clients ask me, “do I need an appraisal?” If there is little dispute as to the value of your property, according to publicly available sources (there are several free web sites that publish real estate values), then an appraisal typically is not needed. But if the publicly available sources point to a value that is substantially higher than what you believe is the fair market value of your property, then your attorney will usually recommend that you obtain an appraisal before filing bankruptcy.