Today’s question is: Will filing bankruptcy affect my house?
Possibly. Your house is an asset that is available to the trustee. The trustee’s job is to liquidate (sell) your assets to get money to pay creditors. Whether the trustee sells your property depends on three things:
1. What is the property worth.
2. How much do you owe on that property?
3. What exemptions do you have in the property.
Here’s how it works: Suppose your house is worth $200,000. Suppose you owe $160,000 on it and you’re married. You and your spouse each have a $30,000 homestead exemption. This is a sum that is exempt from creditors’ claims, meaning the trustee can’t reach that money. So the trustee does the math: $200,000 – $160,000 owed to bank – $60,000 exemption. To the trustee the house has a value of negative $20,000. He won’t bother with it. You’ll still have to make payments to the bank if you want to keep the house but the bankruptcy won’t affect the house.
On the other hand, suppose your house is worth $240,000 and you owe $160,000. Now the math looks like this: $240,000 – $160,000 owed to bank – $60,000 exemption. In this case if the trustee sells your house, pays the bank $160,000 and gives you and your spouse your $60,000 exemption he still has $20,000 left over. In that case he might well decide to sell the house.
The issue gets more complicated because the trustee has to factor in costs of sale such as real estate commissions, closing costs, taxes, etc. but the analysis is the same. What is it worth, how much do you owe on it, what is your exemption?