Written by Charlotte Bankruptcy Lawyer S. Alexander Harper II
When considering whether or not to file for bankruptcy, one of the most common questions people ask is, "Can I keep my home?" or "What's going to happen to my home?" When filing for Chapter 7 Bankruptcy in North Carolina, there are a couple of options that are potentially available if you own your home: (1) You can keep the home, or (2) you can get rid of it, without having to pay foreclosure fees/expenses or anything else. Given the current real estate market and economic outlook, and the fact that many homeowners owe more on their mortgage than their home is currently worth, bankruptcy filers sometimes see option 2 as the more beneficial way to go.
If you are one of these people and you want to get rid of your home, the process is pretty simple. You walk away from the home, and in the Bankruptcy petition we simply write that you are "surrendering" the property. This tells the bankruptcy trustee that you are abandoning the property, and that it shouldn't be included among your assets. It also informs the bank of your decision, and lets them know that they are free to take the property back.
Things get a little more complex when you actually want to keep your home and there's equity in it. Under Bankruptcy law, you're given a certain amount of equity in your home that you can keep when you file for Chapter 7 Bankruptcy in North Carolina. North Carolina doesn't use the federal exemption amounts provided by Bankruptcy law, but instead chooses to set its own exemption limits for North Carolina Bankruptcy filers to use. If you're a single-filer, and yours is the only name on the deed to your property, you can exempt up to $35,000 of equity in the property. So, for example, if your property is worth $135,000 and you owe $100,000 on your mortgage, you can keep your home if you want to. On the other hand, if your property is worth $150,000 and you owe $100,000 on the mortgage, in North Carolina the bankruptcy trustee can sell your home, give you your exemption amount ($35,000) out of the proceeds of the sale, and distribute the rest to your creditors.
Keep in mind, though, that if the value of your home is just slightly higher than what you owe on your mortgage plus your exemption amount, the trustee may still decide not to sell your home. If the trustee sells the home, he'll have to pay a broker's fees and taxes, which means he's not going to be able to keep the entire sale price of your home (minus your exemption amount) to distribute to your creditors. So, sticking with the previous example, if your home is worth $138,000 and you owe $100,000 on your mortgage, even though you have $3,000 more in equity in your home than you're able to exempt, that $3,000 is likely to be eaten up by the costs involved in selling the home, leaving nothing to pay to your creditors. As a result, the trustee is probably not going to take your home.
What counts as a secured loan when calculating how much equity you have in your property? 1st, 2nd, 3rd mortgages and home equity lines of credit (that are actually used). When you add all of these together and then subtract the current value of your home - which you can get either from an appraisal of your home or from comps - the number that you're left with will tell you if you have equity in your property, and, if so, how much. So, say you purchased a home ten years ago for $200,000. You have the property appraised, and the property's current value is $215,000. After paying on the mortgage for ten years, you now owe $160,000 on the property. Your equity in the home, then, is $55,000. If you're a single-filer in North Carolina, you can't keep the home. However, if you're married, and you and your spouse are both filing for bankruptcy, you would now have up to $70,000 as an exemption to use towards your home. So in this scenario, you would be fine: You have $55,000 in equity, and your exemption is $70,000. However, say your home still appraises for $215,000, but you only owe $115,000 on your mortgage. The equity in this scenario is way above the $70,000 exemption you get as joint-filer, and the trustee will likely take the home, or at least give you an opportunity to pay the difference between the equity and your exemption (which would likely be difficult to come up with).
So to summarize, if you're filing by yourself, you get to keep up to $35,000 of the value of your home as an equity exemption. So if your home is worth more than $35,000 more than what you owe on it, the trustee can sell it. If it isn't, then you can keep it. And keep in mind that if the home's value is just above the exemption amount, the trustee will probably decide it's not worth the cost of selling it. Finally, if you're filing jointly with your spouse, the exemption is $70,000.
If you are struggling with overwhelming debt, call a Charlotte, North Carolina bankruptcy attorney at 980-216-4568 and discover how the federal bankruptcy laws can help you get the fresh start you are looking for. Scott A. Harper II, Attorney at Law can help you get the North Carolina debt relief you need.