Many people who consider filing for bankruptcy have a common concern – “Can I keep my house?” In the majority of situations the answer is “yes” provided the person has enough monthly income to pay his mortgage. Soon, thanks to a change in North Carolina state law taking effect December 1, 2009, the answer will still be “yes” for even more people.
Part of the “fresh start” promised by the Bankruptcy Code is having a place to live. For many, that means keeping the house they own. Most homeowners have one or mortgage loans, for which the collateral is the house. The actual market value of the house, minus the payoff on the mortgage, equals the homeowner’s equity in the house. North Carolina state law currently allows a homeowner to “exempt” $18,500 worth of equity in the house to keep it out of the reach of his creditors. This means that people to whom he owes money cannot take the equity in his house unless it is more than that amount. This applies whether or not the homeowner files for bankruptcy.
For example, say a creditor sues the homeowner and gets a judgment against him for $50,000, and the homeowner has $18,500 of equity in his house (i.e. the house is worth $200,000 and the mortgage payoff is $181,500). The creditor cannot have the sheriff execute on the home and sell it to satisfy his judgment because the equity in the house is only $18,500. Likewise, if the homeowner files for bankruptcy, the bankruptcy trustee (who is supposed to represent the collective interests of ALL the homeowner’s creditors) cannot take the equity in the house and sell it and pay the homeowner’s creditors.
Effective December 1, 2009, that exemption is increasing, substantially, to $35,000. Here’s an example of how the change in the law could affect the homeowner described above. If the payoff on his mortgage is only $165,000 instead of 181,500, his judgment creditor or his bankruptcy trustee could currently execute on the house and sell it to the highest bidder because there is more than $18,500 of equity in the house. However, after December 1 of this year, the homeowner will be able to protect and retain all $35,000 worth of that equity because of the change in the law.
If you or someone you know is worried about losing a home because of debt, call our firm for a free consultation, or go to www.defendmyrightsnow.com/bankruptcy-raleigh-north-carolina to learn more.
- Wikipedia’s Bankruptcy page (http://en.wikipedia.org/wiki/Bankruptcy)
- Actual text of the new homestead exemption law: http://www.ncga.state.nc.us/Sessions/2009/Bills/House/PDF/H1058v6.pdf