You may be worrying about whether you will be able to retain your New Jersey residence after filing for chapter 7 bankruptcy. If you are in this situation, you will need to be aware of what your residence is worth along with what is owed on the mortgage(s).
Section 522 of the bankruptcy code allows a person who files for bankruptcy certain exempt assets. This means that you will be allowed to protect a certain amount of property from collection in a bankruptcy case. Section 522(d)(1) of the bankruptcy code permits an individual to protect $23,675 in equity of real property. In the case of a married couple filing a joint bankruptcy proceeding who jointly own their residence, the debtors are permitted to double the exemption which amounts to $47,350.00. When evaluating whether your residence has equity above the exemptions that cannot be protected, the mortgage liens on the real property must be deducted along with a cost of sale and the exemption. The cost of sale is generally between 8% and 10%. If there is still equity remaining after these deductions, then your real property has non-exempt equity and that amount is subject to collection by a trustee for the benefit of your creditors. It is important to bear in mind that the trustee appointed in your case can challenge the valuation of your residence that you provide. The Court would then need to decide what the value of the property is at a valuation hearing.
The Effect of Non-Exempt Equity on a Bankruptcy Case
If you find yourself with non-exempt equity in your residence and still want to file a chapter 7 bankruptcy, you will need to pay the Trustee the non-exempt equity in your residence or the residence will be subject to sale. This payment must come from either an asset outside your bankruptcy estate or other exempt property. Examples of how to fund a settlement from exempt assets or assets outside your bankruptcy estate include a loan from a friend or family member or liquidation of a 401k. If your residence is sold, then you will generally receive your exemption from the sale of the real property. There are certain exemptions to this such as liens from taxing authorities; however, this is something your attorney should be able to evaluate for you prior to the bankruptcy filing.
The Trustee's Process to Sell Real Property
In the event that the trustee determines that there is sufficient equity in your residence to sell it towards repayment of creditor claims, then the trustee will begin to market the property in an effort to procure a sale. The trustee must file a motion with the bankruptcy court to approve the sale of the property once the trustee is able to find a buyer. The sale of the property is subject to higher and better offers at the hearing. Therefore, you can try to present a better offer at the hearing to try to retain your residence. In this instance, the Court will evaluate which offer is in the best interest of your bankruptcy estate.
If you are considering filing for bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.