What is your homestead exemption? The majority of homeowners that file bankruptcy do not want to lose their home. People ask questions all of the time about what will happen with their house after the filing of a bankruptcy case. When you file Chapter 7 Bankruptcy the Trustee assigned to your case takes control of all of your property. The Trustee will sell all of your non-exempt property for the benefit of your creditors.
What is the Homestead Exemption?
In Chapter 7 Bankruptcy exemptions help determine what property you can keep free from the claim of your creditors. There are state exemptions and federal exemptions that you can use when filing bankruptcy. However, depending on where you file your case depends on the exemptions that you can use. Ohio is a state that allows its residents to only use the state exemptions when filing bankruptcy.
Ohio Revised Code § 2329.66(A)(1) states that you can protect your interest in a house up to a value of $136,925. If you are a married individual and both you and your spouse file bankruptcy this exemption doubles up to $273,850. Keep in mind, this protection applies to the equity in your home.
Using the Homestead Exemption
Protecting up to $136,925 sounds great but what does this mean? When the Trustee looks at your property he/she is trying to determine if they can recover any assets. They take and sell the assets, collect a fee for administering the bankruptcy estate, and then pay the balance to your creditors.
When would the Trustee have an interest in your house? The Trustee first looks at what your house is worth. Most of the time the County Auditor’s valuation is accepted by the Trustee. Next, the Trustee considers any liens that are properly recorded against the property. This reduces the value of your property that the Trustee can collect. Finally, the Trustee considers, what, if any equity there is in the home. You can then apply your homestead exemption amount against the equity that exists. If there is additional equity the Trustee can collect, he/she may then want to sell the home to recover this amount of money. The Trustee will have no interest in your house if there is no equity available after applying the liens and exemptions against the value of the property.
Example Using the Homestead Exemption:
Your home’s value according to the County Auditor is $150,000. The balance of your home mortgage is $100,000. There are no other liens recorded against your property. There is $50,000 of equity in the property. If you file Chapter 7 Bankruptcy you want to claim your homestead exemption for this property. The $136,925 will cover up the exposed equity of $50,000 and your home is safe. The Trustee would not want to sell your home because he/she would have to pay you back any proceeds up to the $136,925 amount. It wouldn’t be worth his/her time to sell the house.
Your bankruptcy attorney will be able to determine if your house is at risk when filing for bankruptcy relief. After researching some value information, performing some math, and using the homestead exemption you will know if your house will be safe.