Filing Bankruptcy and Keeping Your House.

Detroit, Michigan houseMost of my clients who file for bankruptcy in Michigan want to know if they can keep their house or home if they file under Chapter 7. Debtors are allowed to keep all exempt property. Exemptions are used to protect your assets. An asset is anything with value so the first determination is the value of the house and real estate. Some debtors are going to lose their house just because they can’t afford it.

In the current real estate market, real property is taking a beating. If your house is worth less than what you owe, then it isn’t really an asset. If you sold it, what would you get? A Chapter 7 Trustee is only interested in assets. An underwater house isn’t an asset. It’s usually your biggest debt. If this the case, you can keep it your underwater house. Lucky you.

If the house has some equity, you will have to use your your homestead exemption to protect that equity. You can protect up to $20,200 in equity using the federal exemption 11 USC 522(d)(1). If you are married and it is jointly held, you can double this exemption. That’s a lot of equity you can protect. Most of my clients in the Detroit, Michigan area and the surrounding cities like those in Taylor and the Downriver area don’t even come close to that kind of equity.

If the house has more equity than your exemption allows, there is a really good chance the Chapter 7 Trustee will be looking in to selling or liquidating the house. You would still get to keep your exempt amount. For example, if a house is worth $100,000 and it has a secured mortgage with a balance of $50,000, you would have $50,000 in equity. If you were married, you could protect $40,400 which would leave $9,600 unprotected. The Trustee is going to want that and if that means the house has to be sold to get it, so be it.

If your situation is like that in the example, you may want to consider filing a Chapter 13 or be prepared to “buy” your non-exempt amount from the Trustee. The Trustee really doesn’t care where the money comes from as long as it is paid and can be paid to the unsecured creditors.

You can read more about exemptions, property, Chapter 7 and Chapter 13 in Michigan in my free e-book, The Bankruptcy Book.