In the present real estate market, real estate is suffering. If you owe more on your home than it is worth, it is not a true asset. If you sold it, how much would you receive? A Chapter 7 Trustee is exclusively concerned with assets. An underwater home isn't an asset. This is typically your largest debt. If so, you may retain it as your underwater residence. Lucky you.
If there is some equity in the home, you must use your homestead exemption to preserve it. Using the federal exemption 11 USC 522(d)(1), you can protect up to $20,200 in equity. If you are married and the property is held jointly, this exemption can be doubled. That's a substantial amount of equity you can protect. The majority of my clients in the Detroit, Michigan area and surrounding communities, such as Taylor and Downriver, have nowhere near this amount of equity.
If the home has more equity than your exemption allows, there is a strong possibility that the Chapter 7 Trustee will consider selling or liquidating it. You would be permitted to retain your exempt amount. For instance, if a home is worth $100,000 and you owe $50,000 on a secured mortgage, you would have $50,000 in equity. You could protect $40,400 if you were married, leaving $9,600 unprotected. The Trustee is going to want that, and if that requires selling the property, so be it.
If your situation is similar to the example, you may wish to file for Chapter 13 or be prepared to """"buy"""" the non-exempt amount from the Trustee. The Trustee does not care where the funds originate, so long as they are paid and can be distributed to unsecured creditors.
Please consult my website, Downriver Bankruptcy, for additional information about bankruptcy.
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