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Many people will tell you that if you have a house, you will lose it if you file for bankruptcy. That generally is not true. When lawyers at Horwitz & Horwitz initially meet with clients, one of the first things discussed is the subject of their home. Together, attorneys and clients try to set an approximate value of the house’s worth in the current market. We can do that if the client has been keeping up with the sales prices of similar homes in their neighborhood. Of course, most people don’t keep track of neighborhood sales prices. In those cases, we can look at the appraisal for tax purposes done by the county auditor.
We then look at the current balances of all the mortgages and other liens on the property. (A “lien” is a claim on the property for payment of some debt, such as real estate taxes or an unpaid court judgment.) When we subtract the total balances of the mortgages and liens from the approximate value of the house, the difference is the amount of value you have in your house, which is called “equity.” If your home is worth more than you owe on it, you have “positive equity.” If you owe more than the house is worth, you have “negative equity.” The next part of our discussion is based on whether the house has positive or negative equity.
If there is positive equity, we look at how much there is. In this situation, Ohio law comes into play. Ohio laws protect people from losing everything they have to their creditors by allowing debtors to protect specific values (equity) in certain categories of property. The amount of equity you are presently allowed to keep, free and clear from the claims of your creditors, is $132,900.00 per person. Therefore, if you are married and your house is in both your name and your spouse’s, you have available a total of $265,800 in equity before your creditors, or the bankruptcy court would be looking to get any value or money from it. What this means is that most people filing for bankruptcy will be protected from the bankruptcy court having any interest in taking their homes, as they will not have a house value of more than $265,800 over and above their mortgage balance. And even if there were enough unprotected equity for the bankruptcy trustee to make a claim, it could be paid to the trustee in cash rather than turning the house over.
On the other hand, if the balance of your mortgage (s) is much higher than the value of the residence (“negative equity”), we would discuss whether it would be in your best interest to surrender the house in bankruptcy so that you could get out from under the debt if you surrender a home. The mortgage company will have to settle for the amount they get from the sale of the house to a buyer but cannot go after you if the house brings in less than the mortgage balance. Of course, in this situation, if you want to stay in the house and pay the mortgage, you can do that as well.
If you are many months behind in your monthly payments, there would be more to discuss. And your options are different depending upon whether you file a Chapter 7 or a Chapter 13 Bankruptcy.
If you have more questions about losing your house when you file bankruptcy, contact the experienced attorneys at Horwitz & Horwitz.
