For the person who owns a house, the first question they may ask when they come in for a bankruptcy consult is “Can I keep my house?” The real question is “What do you have to do to keep your house?” In a chapter 7 or a Chapter 13 bankruptcy, if you don’t have any equity you can keep your house as long as you can make your mortgage payments.
If you have equity, you need to be able to protect that equity with your bankruptcy exemptions. If you have lived in Maryland for more than two years, you will use Maryland’s bankruptcy exemptions. (for more on the other bankruptcy exemptions see our post What Are Maryland’s Bankruptcy Exemptions?)
To calculate your equity, we have to figure out what your house is worth. The less your house is worth, the easier it is to protect your house. One place to start is an online appraisal like Eppraisal or Zillow. If you don’t think your house is worth as much as these websites show, we may have you get a realtor to work up a comparative market analysis to show what they think your house is worth. Once we figure out what your house is worth then we can subtract out what it would cost to sell it and what you owe on the house to come up with your equity.
The Exemptions That Protect Your House
Maryland has a onetime homestead exemption of $23,675. If you have less than $23,675 in equity this exemption will protect your house. You also have an exemption for real or personal property of $5,000 and an exemption for property of any kind of $6,000. But you have to use some of these exemptions to protect your other assets. If you have any of these exemptions left after protecting your other assets you can also use what is left to protect some of the equity in your house.
There is also a special exemption for a house that is titled by tenants by the entireties or husband and wife. This exemption protects your house no matter how much equity you have. However, for this exemption to work, there must be no joint debt other than the mortgage.
Protecting Your Equity in a Chapter 13
If you have too much equity in your house to protect it with your bankruptcy exemptions, your other option is to file a Chapter 13 bankruptcy. A Chapter 13 payment plan can also be filed when you are behind on your mortgage to stop a foreclosure and get you caught up on your mortgage payments.
In a Chapter 13 bankruptcy you can keep your house even if you have too much equity to protect in a Chapter 7. To do this you will need to make sure that the Chapter 13 payment plan pays back as much money to the unsecured creditors as they would get in a Chapter 7. In a Chapter 13 case this is called the Chapter 7 liquidation test. This can also be used to protect nonexempt equity in your car and other assets. (for more on protecting your car see our post Can I Keep My Car When I File For Bankruptcy?)
This can all get pretty complicated. But that is why we offer a free bankruptcy consultation. During this consult we can figure out what you have to do to keep your house when you file for bankruptcy.
Conclusion & Next Steps
If you, or someone you know, has this problem you may do them a big favor telling them now is the time to see a bankruptcy lawyer for a consultation. While they may not be able to discharge their tax debt in bankruptcy, they may be able to deal with the debts that are causing their tax problems.
Remember, consultations are free and confidential, so there is nothing to lose.
Want to know more? Discover what you need to know about bankruptcy in Maryland. Click here to see our Free Legal Consumer Guide to Maryland bankruptcy cases and get answers to your questions today. Know your options. Be informed. Protect yourself.
Need a bankruptcy lawyer? Please contact us for a consultation today if you need a Maryland bankruptcy lawyer for your bankruptcy case.
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